Date: May 23, 1999

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The "eRetailing '99" conference was held
May 16-18 at the San Francisco Marriott
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Dear Readers, Clients, Partners, Friends:

Here follows a recap of Stewart Alsop's keynote, "The Future of eRetailing," given Tuesday morning May 18.

(Stewart Alsop is a General Partner of New Enterprise Associates, and a columnist for Fortune Magazine.)

"What's the difference between 'e-commerce revenues' and regular revenues?" Stewart asks as he kicks off his talk. He cites a study he saw recently in one of the Internet magazines predicting e-commerce revenues will reach so many trillions of dollars by the year 2003. But, he reasons, why are we making a distinction between types of revenues? Won't it be increasingly difficult to differentiate EC revenues from everything else? What about researching a product on the web, then buying at a retail location, or buying by phone? Which leads him to his next slide and main point: "EC Is Everything."

It's not a market, industry, or segment, he says. It's a fundamental shift in our economy -- how we use technology, how we deal with customers, how we manage our companies. "It's Amazon vs. Wal-Mart, Autoweb vs. GM, Healtheon vs. Blue Cross."

And it's no secret that investors are seeing it. "They're betting there's something out there, around the corner." Alsop says. "Call it blind faith, a belief that this change is so fundamental, it will change our lives."

eRetailing (or, as Alsop prefers to call it, "e-tailing") *is* the future for a number of reasons. It allows direct contact with customers, and real-time systems integration -- both supply chain integration and personalization, for responding to customers in real time. The traditional strength of retailers, he reminds us, is "person-to-person skills" -- not technology, which is the main driver now in e-commerce. But, e-tailing gives retailers a unique opportunity to take the lead. "It combines the best of both worlds -- people and technology."

Stewart went on to discuss three technology trends he's been writing about in his Fortune magazine columns, and the name he attaches to each of them:

1) Pipes get bigger and more ubiquitous ("The Digital Manor")
2) New kinds of machines ("The Perfect Digital Appliance")
3) A new IT infrastructufre ("The Wheel of Fortune")

Regarding the first trend, he notes that about 50% of the investments made by his VC firm, New Enterprise Associates, are in communications. "This much I've learned," he says. "As fast as you can build pipes, they get filled up." First there was Ethernet, then 100-Mbit Ethernet, and more recently Gigabit Ethernet--now his firm is investing in a firm that actually proposes to do *10-Gigabit* Ethernet. Alsop spoke about how copper, cable, and satellite are all coming together in the home -- and he has all three, showing photos of the extensive communications infrastructure in his own house in Silicon Valley. He has a hub in his basement, a cabling plant, a DSL modem. All this complexity, he thinks, makes the house the biggest bottleneck to enabling widespread high-speed networking.

But he has a theory about home networking: he thinks it will start accelerating because, as soon as one person gets it and starts showing it off, all the neighbors want it. He also somewhat facetiously predicts that cable modem adoption could actually set off civil wars in neighborhoods, as more and more people get them and realize that performance degrades with every new subscriber. "Bandwidth wars," he says.

On trend number 2, Digital Appliances, Alsop admits he's unhappy with Windows. He thinks this phenomenon is a signal we're reaching the end of the PC road, as far as innovation is concerned. "The real volume now," he says, "will come in digital devices." For example, the first true mass-market digital device, the PCS phone, will soon approach the volume of PCs sold to date (which is about 120 million). He cites the flood of new ideas in digital appliances, and mentions some specific products of note already on the market or close: the QualComm "Qphone" featuring wireless email and web access....the "Rio" portable MP3 player, the "walkman of the new millenium"....the digital refrigerator -- yes, it's been announced, allowing automatic reordering of food as you you consume it, based on bar-code technology and knowing what your favorites items and brands are. "But, stay calm!" he says. All these cool new digital devices may be coming, "but *we* are still analog" -- that won't change.

The perfect digital appliance, according to Alsop, has three traits:

- it's useful, having only one primary purpose...."we still want the value of an analog device"
- it's enhanced...digital, flexible, not complicated...."and of course connected to a network, but not an expensive one"...and
- it's not expensive (the device itself)

Add all these things together, then "subtract the pain of the PC," and Alsop says you have the perfect digital appliance.

So, what about the third trend? "Well, if EC is everything, if pipes are getting bigger, and if new machines are arriving, we need a new way to organize IT." Which brought Stewart to his "Wheel of Fortune" analogy, basically a diagram of a pie with five pieces, and a center core representing the customer. "The customer at the center -- *not* your typical IT structure," he points out. The pieces of the pie, the components of the new IT infrastructure, he labels as follows (each listed with an example of the companies he cited in each area):

- Transaction Servers (Inktomi)
- Content Management Systems (Vignette)
- Ad Servers for Customer Acquisition (NetGravity)
- Customer Service Systems (Kana)
- Electronic Direct-Marketing Systems (Connectify--one of his portfolio companies)

So what will the future hold for eRetailers? "Will Amazon open retail stores? Will we vote on the Internet?" he asks. "The focus today is on 'the new thing' -- but someday the new thing will be everything. And eRetailers are leading the way to this new Internet Economy."

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In the brief Q&A followup, one interesting question was, "To what extent can the new e-retailers expect to successfully recruit from the offline retail world?" Alsop said he'd point to three kinds of expertise as critical for the e-retail exec: first and foremost, of course, merchandising--knowing the right product at the right time--"that doesn't change." But he also thinks it's critical they know how to do customer acquisition, and how to market to customers--"the IT part of it." And, finally, they need the ability to manage systems--"to keep them up and scaling."
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I hope this recap was helpful for you. Watch for more of our reporting from the "eRetailing '99" event, coming your way soon.

best regards,
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Graeme Thickins, Founder & Principal Consultant
GT&A Strategic Marketing Inc.
*Twin Cities *LA *San Francisco *Seattle
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