Helping The Governor Figure Out E-Commerce
(FORTUNE Magazine) – Have you heard that electronic commerce is the hottest thing since sliced bread? Yup, that's right. The reason I know is that I'm one of 18 leading lights in California to have been appointed by our governor, Pete Wilson, to his Electronic Commerce Advisory Council.
We met for the first time in early May, at the Redwood City, Calif., headquarters of Excite, the Web search company. The governor popped in to say a few kind words about E-commerce. He even sat in front of a computer and, with a considerable amount of assistance, logged on to eToys (www.etoys.com) to buy a Mickey Mouse toy for his secretary's new baby. It was quite a congenial meeting. We formed four subcommittees--on taxation, regulation, consumer rights, and the role of government in electronic commerce--which will offer recommendations on how to make California a really friendly place to do business online. We're going to do most of our work by E-mail and on a Website where we will have private access to news groups and chat rooms. So we're even going to practice what we advise.
But I must admit that I kept wondering what the fuss was all about. Don't get me wrong! I think electronic commerce is really important. I've even invested my partnership's money in one or two companies that are based on the idea that electronic commerce provides considerable opportunity to make money. But I kept thinking, "What the heck are we supposed to tell the governor of California to do about this?"
It seems patently clear to me (as well as to the rest of the world, judging by the value of the few publicly held companies practicing E-commerce) that the Internet provides a fundamentally less expensive and potentially more satisfying way to transact certain kinds of business. There are many clear examples: Amazon.com (www.amazon.com) and Computer Literacy (www.cbooks.com) for selling books; CD Now (www.cdnow.com) and Music Boulevard (www.musicblvd.com) for selling music; E*Trade (www.etrade.com) and Charles Schwab (www.eschwab.com) for selling stock; Preview Travel (www.preview.com) for selling travel; and Onsale (www.onsale.com) and Ebay (www.ebay.com) for auctioning just about everything. I've seen business plans for companies proposing to sell sporting goods, vitamins, insurance, cars, toys, credit cards, credit reports, real estate, and more. (Most of the business plans begin with the idea that this company will be "the Amazon.com of" such-and-such a category.)
Here's the crux of what electronic commerce means to me: It is an opportunity to use a technological paradigm to compete effectively with existing companies in markets that are already well known to us as business people and as consumers. Amazon.com can compete favorably with Barnes & Noble and Borders precisely because it does not have and is not interested in having physical stores. Amazon.com does not have the buildings and fixtures, the retail-trained staff, the inventory (well, not as much inventory), the theft of inventory, the cost of spreading inventory around stores, or any of the other physical constraints that define the everyday world of "bricks and mortar" commerce, a world that techies deride as "analog commerce."
This does not mean that Barnes & Noble, Wherehouse Entertainment, Wells Fargo, or Safeway must disappear. It only means that savvy entrepreneurs can build businesses to satisfy particular kinds of customers and make a lot of money doing so--music to the ears of a venture capitalist. I am one of those customers; I've bought flowers, books, music, clothes, and jewelry from companies with a Website. I hand out my credit card number willy-nilly, figuring the vendors will make sure it's not stolen for fear of losing all their business. I'm a shameless Web consumer. I also buy a lot of stuff from direct-mail catalogs. And I love to go shopping in real stores built out of bricks and mortar, with my fiancee or even by myself.
So there I am with the other bigwigs--CEOs of Internet commerce companies; officials of various state and local organizations; learned professors and legal experts--wondering what the heck we're supposed to tell the governor to do about electronic commerce. When you think of it, what's the difference between ordering a product in person at a store, over the telephone from a catalog, or through a computer from a Website? You're still a human being trying to satisfy some need by buying something.
It might be that the company selling you something over the Web could sell it to you at a lower price. (I haven't noticed that I'm paying any less for Web-sold products, to be honest. And every study I've seen indicates that the people who buy on the Web are not shopping for better prices.) But that doesn't mean that suddenly we need new government policies or regulations.
There are several issues that came out during our roundtable discussion. Taxation is a big one. For instance, some states have decided to tax online purchases differently from mail or telephone purchases. It's not clear to me why buying products online would create a different kind of tax, although some of my fellow council members suggested (before the governor arrived) that it might be motivated by opportunistic politicking. Oh, gosh!
Another big issue is consistency. Internet commerce companies apparently believe that the Internet removes them from the consideration of mere mortals, bound by their allegiance to a particular location. As a result, people who start companies to take advantage of Internet commerce are morally and socially offended by rules that differ from one locale they serve to another. I heard the CEOs of several such Internet companies complain vociferously about how complicated it was for them to keep track of all these different rules. You might be able to tell that I ended up thinking of these comments as barely a step up from childish whining.
But we are an august group, created by the governor to consider important issues of electronic commerce. I kept wondering what all the catalog companies and franchise companies and other companies with operations that span state and even international borders did before the Internet came along. Boy, life must have been really rotten then, back in the old days in 1994 or so!
Luckily the chairman of the council is Floyd Kvamme, the only other venture capitalist onboard. He kept the meeting mercifully short, so we could get back to doing all that electronic commerce. I volunteered for the subcommittee on the role of government in E-commerce. I'm hoping that I can send E-mails and post items in news groups that might convince my fellow members that we should recommend to the governor that he do absolutely nothing about electronic commerce. To be totally honest, I really look forward to a time when we can have electronic government, the kind that might put our existing bricks-and-mortar style of government right out of business so that we can go on with life in our new electronic world. But there isn't a subcommittee on that.
STEWART ALSOP is a partner with New Enterprise Associates, a venture capital firm. Except as noted, neither he nor his partnership has a financial interest in the companies mentioned. Alsop may be reached at email@example.com