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On Solid Ground
Author: Rob Reynolds
To succeed, a Web-based company must use real people and real tools
Presumptuous as it may sound, my tiny $6-million company might be able to offer Amazon.com and eBay a few pointers. Recently, each of those Web-based giants made a major deal to add a brick-and-mortar presence to its business. At LifeServ Corp., we've always believed that a successful Web-based company can't exist solely in cyberspace. It needs a terra firma foothold.
The Internet hasn't changed the fundamental rules of business: You have to go where the people are, tell them who you are, and get them to come to you. At most, maybe 40% of the population has access to the Internet right now. And those people, of course, aren't on-line all the time. Since consumers spend most of their time off-line, we figure we need to find them off-line.
Of course, even if all the people in the world did spend their lives in cyberspace, it would still be smart business to have three-dimensional, real-life business operations. Amazon.com and eBay realize that, which is why Amazon.com forged its alliance with auction legend Sotheby's and eBay acquired San Francisco-based auction house Butterfield & Butterfield.
To the outside observer, my business certainly must look like an Internet company. LifeServ provides consumers with organizational tools and information that help them plan major life events, such as getting married, having a baby, sending kids to college, and buying a home. To do that we provide them with a CD-ROM that contains not only our event-planning software but tools for building a personalized, password-protected Web site that will run on our server and how-to video content on such subjects as changing a baby's diaper or choosing a china pattern. Customers use their sites to keep their friends and family informed (the software allows them to send E-mail with an embedded hyperlink) and to exchange messages with other brides, mothers, home buyers, and so on. They also can pose questions in real time to our customer-service staff and get information from our network of providers.
Our revenues come from advertising partnerships with those providers -- such Fortune 500 companies as Mead Johnson, Ford, Prudential, and AT&T. For example, Lincoln Mercury is sponsoring our car-purchasing content, which will be integrated with marketing messages from Lincoln Mercury. We also sell some products and services direct, such as wedding cameras, cake knives, and garter belts.
My original partner and I first had the idea for the company in 1991, before the Internet took off. Maybe that was good for us, because we were forced to think of real-world ways to get people to use our software. Now those real-world strategies just seem smart. We knew that we wanted to provide the software free, so when the Internet came along, it offered us an excellent distribution channel. But the Internet isn't the be-all and end-all. It's just another tool -- albeit a great one -- that allows us to do business better.
There are three areas of our business where we've decided that a real-world presence is crucial:
CUSTOMER SERVICE. Most people think of the Internet as an opportunity to automate. You just throw a Web site up and customers can find the answers to their own questions. Well, maybe in some Buck Rogers world years from now we'll have the artificial intelligence to make that work. But even if you could automate the whole process, customers would still want the human touch. We found that out when we started up on the Web, in 1997. No matter how much information we put on our sites, we still received a gazillion customer queries, often questions that were ostensibly answered on the sites. We also intuitively figured that our customers -- at the time, brides and mothers-to-be -- were going to want a personalized relationship.
When one of our customers calls or E-mails us with a question, we either respond ourselves or refer the questioner to one of our partners or to other Web sites. For instance, say a mother is concerned about feeding her newborn. If she needs more information than we have, we can direct her to the nutritionists and doctors at one of our partners, like Mead Johnson.
In the long run, the success of every business hinges on how well it does customer service. An automated help function often provides useful information, but by definition it's generic. People don't get the personal solutions they need. Our members -- and, I would argue, most consumers -- benefit from having someone to whom they can pose a follow-up question or someone who will walk them through a process. The Internet doesn't eliminate the need for customer service; it allows you to give better customer service. In the process the Internet actually creates the need for more human resources.
Providing live customer service over the Internet also offers a great opportunity to sell more stuff. It's the ideal medium through which to fulfill the promise of one-to-one marketing. For instance, we created software with a split screen that allows our customer-service rep to chat on-line with a member on one side of the split and help the member navigate the Web on the other side. If a mother contacts us because her child has a rash, we can direct her to specific Web sites that carry pictures of rashes. Then we can tell her what might be causing the rash, what she can do about it, and where she can go for additional information. It's about localization and humanization. If you can talk to someone, you've won the marketing war.
INFORMATION DELIVERY. A lot of people are touting Internet capabilities that aren't really here yet -- they're not common enough to be useful. Take real-time video, for instance. Companies announce tests of new video technologies all the time, but more than 70% of consumers are using 28.8 or slower modems -- an almost impossible connection through which to receive video. So until the Web becomes more video-friendly, we're giving consumers our video content via CD-ROM. For instance, we give brides a virtual fashion runway and an interactive mix-and-match table-setting function that helps them choose their china and silverware patterns. For home buyers, we're developing a walk-through virtual home inspection. Since all our CD-ROM material is written in HTML, when video on the Internet truly comes of age, transferring it to the Web will be a snap.
MARKETING. We could buy banner ads on other Web sites to attract customers, but they're not that effective. We tested using banner ads for two years on 300 different sites and then measured our customer-acquisition costs through the Internet versus point-of-purchase displays and direct marketing. Frankly, the results weren't even close. In general, click-through rates aren't even 1%, and they continue to decline.
Rather than using banner ads, we like to find strategic partners that already have a stronghold with consumers: real-world portals, if you will. For instance, Mead Johnson markets to three-quarters of all expectant mothers each year and will be offering our software to all of them. Another of our partner organizations, the National Bridal Service, has 800 bridal and gift stores, and we give our software away at most of them. Real-life events are local, so we engage in local marketing.
We're cultivating a large network of local providers. So a WedServ member getting married in Chicago will be able to contact flower shops, limo services, DJs, reception facilities, car-rental companies, bridal stores, and bridal consultants in that area. That strategy flies in the face of the Internet convention that you build one site and have everyone get everything he or she needs from it. People still buy locally. According to a recent study, consumers still spend 85% to 90% of their disposable income within a two-mile radius of their home.
Not that we're ignoring the Internet. Obviously, it's a major part of our business. We just finished rolling out our "affiliate" program, in which we get other companies to link their Web sites to ours. Every time a visitor comes to our site from theirs and downloads our software, we pay that affiliate up to $1. We also incorporate our affiliate partners into our lists of local providers, so they send people to us and we send people to them. So far we have more than 1,000 affiliates, mostly relatively small companies ranging from on-line-shopping sites to local florists. Forming partnerships with so many small sites means we don't have to live in fear of being dumped by AOL.
The only thing we don't know is if it's all going to succeed. We have some anecdotal evidence that our idea is catching on. This past summer we got calls from several obstetrical nurses, asking for our BabyServ CD-ROM to give out to expectant mothers. And we've also got some promising numbers that we can point to. First, we've been able to close six- and seven-figure marketing deals with Fortune 500 companies. Second, because we're so targeted, our cost to acquire a new customer is less than $2. That's one heck of a lot better than the $25 to $30 that it costs to acquire a customer over the Internet. Finally, our daily rate of new memberships went from 150 to 3,000 after we started distributing our software by CD-ROM. But beyond those initial results, we're just going on gut -- on our intuitive belief that a real-world presence is absolutely critical to Web-based success. Our goal is to get the right mechanisms in place. And then we'll see how everything plays out.
Rob Reynolds is president and CEO of LifeServ Corp., based in Chicago.
Copyright © 2000 Goldhirsh Group Inc.
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