“I cannot enter a video store without detecting the faint Whiff
of Death that saturates the industry…the business model seems so
1985, like selling holy precious Internet access by the minute
in special stores” - James Lileks
The consumer Internet economy is
about 10 years old. What does the future of retail content
distribution look like?
At the peak of the dot-com boom,
Internet proponents confidently predicted that most commerce
would move online. That massive shift is taking place in the
business-to-business realm -- B2B, for those nostalgic for
dot-com jargon -- but not in retail.
Why? Business-to-business
e-commerce is driven primarily by workflow optimization and
profitability. But retail e-commerce is constrained by "human
factors." That's engineering jargon for how people prefer to
interact with technology in real life. A classic example is the
low use of videophones, a technology that's decades old. People
prefer not to get dressed up at home to look presentable on the
telephone.
Let's look ahead several years
to a time when home Internet connections will routinely be
powerful enough to support the purchase or rental even of
videos. Will there still be stores selling video, music and
books?
Movies - Video
rental stores are likely to be replaced by direct downloads of
movies in the long term. In the short term, they are under
assault from alternative business models such as mail-based
NetFlix.
But movie theaters will not
disappear, just as they didn't 60 years ago when television was
introduced. People value, and are willing to pay for, the social
experience of viewing a movie on a giant screen with a large
audience.
The Internet also might soon
reinvent the economics of the movie theater industry, as
demonstrated by Qwest owner Philip Anschutz's plan to
consolidate several bankrupt movie chains and use his giant
Internet "pipes" to digitally send movies directly to theaters,
where they can be downloaded and played, rather than having to
ship movie reels physically and have projectionists manually
load them.
Music - In the
era of the iPod, it is easy to imagine specialist music retail
outlets disappearing. The user experience is actually better in
every way online, whether browsing artists or sampling tunes. In
fact, music stores these days seek to replicate the online
experience with their headphone stations for sampling albums.
The music industry also faces
the most uncertainty in its future business model and
profitability, trying to protect intellectual property in the
age of downloading. But music in the (near) future will more
likely be purchased on a cell phone than in a retail store.
Books -
Bookstores are here to stay. First, like moviegoers, book
buyers enjoy the bookstore experience socially, surrounded by
fellow bibliophiles. Second, unlike music, the book buying
experience is sometimes more intuitive in person than online. If
you know which book you want to buy (or at least what topic),
online is more efficient. But if you are aimlessly browsing for
something to read, nothing beats walking through a bookstore.
My perspective on these issues
was greatly influenced by "The Internet Strategy Handbook," by
Mary Cronin, a professor at Boston College. Published in 1996 at
the dawn of the dot-com era, Cronin used her background in
library science, a centuries-old knowledge management
discipline, to cut through the Internet hype and analyze when
people like to buy from a distance and when they prefer a
"hands-on" consumer experience.
Here are my four rules
for forecasting the future of retail:
1. "Human factors" trump
everything: If the user experience is not intuitive, it
will be disdained by consumers.
2. Auctions aren't for
everyone: Despite eBay's success, most people don't
want to bid in the open market for most purchases. As several
analysts have noted, the auction model peaked in the Middle
Ages, at the weekly village market. It is a crude instrument
when applied to every aspect of commerce.
3. Catalogs aren't for
everything: Catalog buying peaked nearly a century ago,
when the Sears catalog was the
Amazon.com of early 20th
century retailing. But catalogs quickly turned into a niche of
the consumer economy complementing retailers, rather than
replacing physical stores.
4. People who need
people are the luckiest people: Consumers enjoy -- and
will pay for -- the company of others who share their interests,
in comfortable settings.
