E-Commerce Waits for Customers

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Cable operators simply haven't had the time or
resources to focus on creating e-commerce applications for their cable-modem and other
interactive services. But now that many of their initial tasks to introduce these products
are under control, operators are turning their attention to e-commerce, a potentially
lucrative revenue source.

Making money with e-commerce, however, won't be easy.
Technical challenges, as well as managerial challenges galore, face cable operators that
are starting online merchant offerings.

Cable operators, however, have every reason to give
e-commerce a try. Purchasing of goods online is expected to boom over the next few years,
according to a recent study by ActivMedia Inc., a Peterborough, N.H.-based research
company. Revenues from Web-based purchases now stand at $21.8 billion. ActivMedia expects
that number to grow to $180 billion by 1999 and to $1.23 trillion by 2002.

Cable operators have several advantages as far as tapping
into e-commerce revenue. Their high-bandwidth cable-modem services provide a
"portal" through which consumers will need to pass through before going to the
Internet, said Kendra Wilde, vice president of business development with Time Warner
Cable's Road Runner high-speed-data service.

Also cable modems' continuous-connection feature will
lower barriers to electronic purchases because consumers won't have to click a button
and wait for access to the Internet, said Kate Delhagen, a senior analyst with Forrester
Research.

And the higher bandwidth of cable modems will inspire
consumers, Delhagen said.

"If consumers use our service, the experience is just
a little more fulfilling," Wilde added. "If you get the chance to see a video
clip or hear an audio feed, you might decide to buy that product."

And the local nature of cable operators offers them the
opportunity of tapping into the retail markets of their communities. "The cable guys
are at a potentially very big advantage," Delhagen added. "They are in the
position to own that portal to e-commerce."

But cable operators have had more pressing issues to take
care of -- primarily getting their product out and finding customers that are willing to
pay for their cable-modem and other interactive services. They said e-commerce
applications are a moot point until they have enough customers to make that sector
appealing to retail partners.

Indeed, most cable operators said that over the last year
or two, e-commerce has not been a priority. Richard Rasmus, vice president of Comcast
Corp.'s Comcast Online Communications, based in Bala Cynwyd, Pa., said his company
hasn't even begun investigating e-commerce.

"On a day-to-day basis, it's not a
priority," Rasmus said.

Delhagen agreed that cable operators have been wise to
concentrate on rolling out their services, rather than worrying about e-commerce.

"It definitely needs to be a first-things-first
approach," Delhagen said.

That's been the attitude of Calgary, Alberta-based
Shaw Communications Inc. Shaw now accounts for 27,000 @Home Network customers.

"Frankly, my focus has been on selling the
service," said Peter Bissonnette, senior vice president of operations at Shaw.
"E-commerce has not been our primary focus. It's one of those things: You need
to get the car built first before you worry about accessories."

Cable operators have also have been preoccupied with
filling these services with appealing content. While cable operators all agree that
e-commerce could be an enticing service for consumers -- helping them to make purchases of
everything from software to clothes faster and easier -- they said building information
and entertainment content has been their leading concern over the last year or so.

Wilde, for example, said establishing enticing news,
information and entertainment services has been the biggest priority for her company over
the past year.

Road Runner so far has only launched a national travel
service with established Web business Travelocity. This summer, Road Runner also plans to
introduce books and music sales as part of its national e-commerce package And Time
Warner's Akron, Ohio, cable operation -- the first one in the country to offer Road
Runner -- has not yet launched any automated local e-commerce services, although customers
have purchased some items via e-mail.

But many operators said they are turning their attentions
to developing e-commerce, as they get the technical and management challenges of cable
modems under control.

Time Warner's Akron system, for example, is 60 to 90
days from launching several e-commerce initiatives, said John Guran, the system's
director of advanced-digital services.

Cable operators and cable-modem-service suppliers such as
Road Runner are looking to the Web for ideas for initial e-commerce applications.

Such ubiquitous consumer items as books, music and CD-ROMs
are early targets.

Delhagen said cable operators can benefit from e-commerce
by either selling the "shelf space" on their cable-modem or interactive-TV
services or by garnering a share of sales from consumers accessing Web sites via their
cable modems.

Mike Meyer, general manager of Internet services for
Oceanic Cablevision in Honolulu, Hawaii, said his company will likely focus on books,
travel and other items similar to those targeted by Time Warner's national Road
Runner group. He said items with heavy price competition or long purchase cycles requiring
lots of information will be best suited to e-commerce.

Road Runner executives and other industry members picked
software as one of the best early bets for e-commerce over cable-modem services. The
faster download rates available on cable modems mean that a consumer can download a
software package, such as Microsoft Corp.'s Word, in a matter of a few minutes,
rather than a half-hour or more. Cable operators would likely glean a percentage of
revenue from all software sold via a cable-modem service such as Road Runner, Wilde said.

Road Runner is also contemplating on-demand or pay-per-view
CD-ROM downloads. Consumers, for example, could download a CD-ROM on films to search for
information on various movies that they want to rent that night.

Subscriptions are another potential revenue source, Wilde
said.

Road Runner hopes to get consumers to pay extra for premium
or customized multimedia programming, ranging from sports reports and news information to
entertainment downloads. For example, Wilde said, consumers might pay to be the first ones
to receive downloads of the latest video-game releases.

As part of e-commerce, Road Runner hopes to improve
consumers' experiences by creating an express-checkout service of sorts. Road Runner
will securely store customers' names, addresses and appropriate financial
information, such as credit-card numbers, so that a consumer doesn't have to re-enter
the information with every purchase. Instead, consumers could enter four-digit
personal-identification numbers, as they do now with ATM (automatic-teller-machine) cards.

Bissonnette said he plans to make money from e-commerce by
helping companies to market their products. Shaw, which is partnered with interactive-TV
service WorldGate Communications Inc., is considering charging companies every time a
viewer clicks from an icon on a TV ad that takes them to that company's Web page.

E-commerce, however, doesn't stop in the home.
Delhagen predicted that business-related e-commerce will boom over the next few years, far
eclipsing consumer e-commerce spending. Forrester estimated that business-to-business
e-commerce will grow from $17 billion in 1998 to $327 billion in 2002, compared with
Delhagen's estimates for consumer based e-commerce, which will grow from $4.8 billion
this year to $22 billion in 2002.

Businesses have expressed interest in the high-speed-data
services of cable operators such as Time Warner's Ohio division.

Guran said employees from various companies in the Akron
area called and asked Time Warner to install the cable-modem service at their companies.
So now, the operator is focusing on businesses more than on consumers.

Guran said business customers are promising outlets for
e-commerce revenue, but they also provide many challenges. He expects business e-commerce
to be lower-maintenance and higher-margin than consumer e-commerce.

Guran, however, has run into a problem that is being
encountered by all cable operators targeting the business or consumer e-commerce market:
Most smaller and midsized companies need help setting up their e-commerce sites.
That's a capability that doesn't come naturally to cable operators.

Guran said his company now has some in-house
Web-page-design and programming capability, but not enough to begin a full-time service
helping partner companies to create their own e-commerce sites. His organization has
created some simple e-commerce applications, but creating automated sites that offer
secure transactions with credit cards and other features is much more complicated, Guran
said.

His division has spent several months investigating how it
should go about helping businesses that want to conduct e-commerce over the Road Runner
service. It has looked at off-the-shelf packages that it could resell, but those typically
cost far more than his partners can afford -- upward of $500,000.

Time Warner Ohio is also looking at establishing strategic
partnerships with Web-design houses, as well as at developing such capabilities in-house.

"The smaller to low-end market of businesses shows
interest in e-commerce, but they need some help," Guran said. "We're just
trying to decide what role we can play."

Even for those cable operators that have already tried
deploying e-commerce services, results have been lackluster. Oceanic launched
"Marketplace Hawaii" over the Web in late 1996, partnering with various local
retailers to market Hawaiian products to the islands' international tourist base.

Meyer said Oceanic's e-commerce efforts have been hurt
by a slumping Hawaiian economy. Retailers are "dragging their feet" to join the
electronic-retail consortium, but the growth of the service hasn't surprised them.
Meyer knew in 1996 that Oceanic was ahead of the market.

"It hasn't performed in any way to surprise any
of us," Meyer said. "Just a slow, steady increase."

Meyer said that when Oceanic first launched the site, his
company received a few e-mails each day from mostly high-tech enthusiasts. Over the last
year, however, general-consumer interest in the site has picked up markedly. Now, the
company receives dozens of e-mails from consumers asking about various products, with
specific requests about making purchases.

Oceanic launched Road Runner in November. Meyer said his
company, like other cable-modem providers, is concentrating on building subscribers. As
this group grows and becomes more demographically diverse, Meyer said, he expects
e-commerce opportunities to build, perhaps with new services by the end of this year.

Peter Winter, president of Cox Communications Inc.'s
Cox Interactive Media, based in Atlanta, said the technical complications of e-commerce
are the biggest barrier for cable operators. Winter said it will take five to 10 years
before a majority of retailers are able to design their existing computer networks to meld
easily with e-commerce systems.

"It will take longer than most people think,"
Winter said.

Cox, for example, tried to sell fishing licenses online. It
set up a quick-payment application that would let customers buy licenses with their credit
cards. But Cox's banking partners had problems processing such requests quickly,
taking up to 10 minutes to give consumers approval on their cards. Such a delay made the
entire process unappealing, Winter said.

Winter added that retailers need to link their Web sites to
their existing computer systems handling inventory, ordering and sales. But this is no
easy task, and each retail segment differs in its existing technology. Web commerce
without such links is awkward, slow and so inefficient that it is limited in the number of
requests that it can handle, Winter said.

Also, retailers without direct-marketing experience are
unprepared for selling over the Web, which parallels many aspects of catalog sales and
similar retail channels, Winter said.

He added that e-commerce growth will be piecemeal, as a few
companies at a time make the necessary changes to their internal computer systems to
conduct e-commerce.

Winter's advice to cable operators: Scale their
efforts with e-commerce according to this time line of growth. In other words, don't
expect too much from e-commerce for at least a few years.

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