Despite massive spending on hardware, software, and personnel, e-commerce Web sites will continue to infuriate shoppers this holiday season, just as much as crowded mall parking lots. But the sites that don't crack under pressure will win big in the minds of customers and investors this Christmas.
As the holiday season wears on, much more is at stake than a retailer's reputation. Web retailers will spend more than $3 billion on ads this year trying to lure customers, with most of that money being spent in the fourth quarter, according to industry magazine Advertising Age.
If consumers take the bait as expected, online shoppers will spend $6 billion during the 1999 holiday season, according to e-commerce research firm Jupiter Communications. Jupiter says the holiday season will represent 40 percent of the total projected 1999 sales of $15 billion.
If Web promotions work and the Web site doesn't, consumers won't come back. No matter how you skew the numbers, the costs of a failed Web site are staggering. It's the online equivalent to having a well-stocked, fully staffed store, and forgetting to open the doors to let consumers inside to buy.
YOU BETTER WATCH OUTCustomers are already finding that the promise of no-hassle shopping online is a lie -- at least for Christmas. As you read this, Web sites are already back-pedaling about how quickly they can respond to your holiday purchase requests. On December 20, Web retailer eToys posted the following: "We're sorry, but our holiday shipping deadlines have passed. New orders placed today cannot be guaranteed for delivery by Christmas, but a Gift Certificate will get there in seconds!" (Like any dad in his right mind is going to hand his teary-eyed 4-year-old a piece of paper Christmas morning.)
Similar statements were posted on Toysrus.com, Wal-Mart, and KBkids.com. In contrast, Amazon.com guaranteed overnight delivery up until December 22.
A June study by market analysis firm Zona Research shows that about one-third of Web users give up trying to buy something online when they find the shopping experience frustrating. When quantified, that frustration puts some $4.35 billion in U.S. e-commerce sales at risk each year solely because of slow Web sites.
"The biggest challenge for a lot of companies is that they want to keep their spending down while trying to serve as many customers as possible," says Scott Anderson, vice president of services for Assist Cornerstone Technologies, a Utah-based e-commerce software and services firm. "Another problem is that these [Web site] implementations are going at light speed. And when you're talking about complex business systems integration, it sometimes doesn't happen fast enough to serve the Internet opportunity."
ADD IT UPIt costs up to $41 million in the first year and $49 million annually on an ongoing basis to build a sophisticated Web site that handles 10,000 transactions per day, according to Forrester Research, a technology research firm.
800.com's experience typifies the challenges many Web retailers face today. The company, a consumer electronics retailer, spent nine months preparing for its October 6, 1998, Web site launch. But it only took one poorly planned promotion to bring the whole Web site down, forcing the company to take orders over -- egads! -- the telephone.
CEO Greg Drew says 800.com's site was designed as a place where customers return several times before they buy. Most people don't buy big-screen TVs and other expensive items on impulse. That means 800.com's site must serve information to each consumer in the context of what that consumer saw or bought during previous visits. "Our customers don't want to explain their home theater configuration each time they visit us," Mr. Drew says.
Even with all that planning, someone forgot to tell 800.com's marketing department that the company's site wasn't bulletproof. On December 3, 1998, the company launched a promotion where it sold three DVDs for $1, no strings attached. Suddenly, a site built for leisurely shoppers was besieged by active buyers. These shoppers didn't just want to see static pages of information; they wanted to buy stuff.
A common mistake among new Web retailers is that they don't give enough thought to the differences between a Web site built to handle a high volume of transactions and one that mostly serves static information. Transactions require sites to access product inventory levels, customer data, product information, and third-party credit card verification systems -- and serve it all up on demand, to thousands of people at a time.
TOO MUCH INFORMATIONIn 800.com's case, the onslaught of Web buyers overloaded its servers, causing it to stop service to most customers on December 18, 1998. The company declined to give specifics about the incident.
New orders peaked at 10,000 per day, Mr. Drew recalls, forcing the company to more than double its server capacity -- from 13 to 28 servers -- during the first weekend of the promotion.
If you don't want to end up like 800.com, you'd be wise to take the advice of e-commerce consultants. Chris Loosely, a senior Internet consultant with Keynote Systems, recommends that sites give users both a high-graphics and low-graphics option when they first visit a Web page. Should the company's servers become overloaded, the company can redirect all of its high-graphics users to the low-graphics pages for a temporary fix. Those mostly text pages don't require as much bandwidth or server capacity. "It can save your tail when everything goes south," Mr. Loosely says.
Another remedy lies in buying server software that helps sites manage traffic on the fly, such as Hewlett-Packard's (NYSE: HWP) WebQoS (Web Quality of Service). WebQoS and other site analysis software help online stores give preferential treatment to frequent buyers -- the same way a sales clerk will rush to help a familiar face in a crowd of holiday shoppers. In the event of a traffic spike, the software can hang onto shoppers who are in the middle of a transaction or who have a profile that shows they are more inclined to make a purchase, and disconnect the rest. "Better to tell some people, 'I'm sorry we can't help you,' than to screw everyone up," Mr. Loosely says.
TEST IT, STUPIDAnother way to prevent site mishaps is to test sites extensively from remote locations. A Web site should be tested from home and work connections, as well as from many different parts of the world, advises Lloyd Taylor, Keynote's vice president of operations. Companies should also be careful to test database and application servers, not just the front-end Web servers, to make sure they can handle loads of heavy traffic, he says.
Analysts warn online retailers that this year consumers aren't going to be as lenient. They'll expect the same level of service online as off. Site glitches, slow service, lack of communication, and other problems will just make it easier for them to click once and leave forever.
That fact hasn't been wasted on 800.com. Since last year, the company has invested "tens of millions of dollars" in technology to support its Web site and prepare for yet another onslaught. "We've spent the last ten months getting ready for the 12-week [holiday shopping] period," Mr. Drew says. "We now have over 100 servers in our data center and we've [backed up] everything."
In addition, 800.com integrated its Web site tightly with its distribution center. In most cases, Mr. Drew says, an order placed on 800.com's Web site heads out of its warehouse in two hours. The company also invested in software from Segue Software to help it monitor and test several different aspects of its site. (The privately held 800.com declined to reveal the cost of the software and integration.)
Heading into the holiday season, 800.com is confident that last year's fiasco is well behind it. It's spending heavily to draw new customers. It closed a $57 million third round of financing, agreed to pay America Online $10 million for preferred placement on its various shopping sites, and launched a $25 million advertising campaign to bring users to its fortified site.
Mr. Drew says the company expects it will do more business during the 12-week holiday shopping period than it did for all of the past 12 months. He -- and other online merchants -- have five more days to prove that they can truly handle the Christmas crunch.