Think back to last December. It was the season of the Web — the season that proved, once and for all, that the Web was the future of commerce. Everything was coming together. Everything was falling apart. It was hard to tell one from the other. At least that’s the way the world looked to CEO Jim Daniell, 35, and to almost everyone else at OrderTrust, the four-year-old, 130-person company that Daniell runs, in Lowell, Massachusetts, about 40 minutes northwest of Boston.
Hundreds of e-commerce companies are already outsourcing all the back end of their business to OrderTrust: the tedious, complicated, and expensive processes involved in taking and fulfilling orders over the Web. This past holiday season, hundreds more began to realize that they could use that sort of help. Daniell sent out “Merry e-Christmas” cards to his prospective e-commerce customers. On each card was a picture of snowbound cars; the question “Was your e-store able to handle the holidays?” was written underneath. Everywhere in the world, people were waking up to the selling power of the Internet. Things were exploding online: The growth was much faster than anyone expected. Explosions like that make people rich overnight. Explosions like that also leave behind a lot of rubble.
Daniell remembers the 1998 holiday boom: “Everybody bought on the Web. The party ended after 18 days straight of pulling all-nighters at these e-commerce operations. And afterward there was infrastructure heartburn. One of our customers — ToySmart — used to have a dozen employees. Over the holidays, it grew to 135 people. Those people need help.” At OrderTrust, and at almost any company that’s doing business on the Web, the reality is hitting home: The race isn’t just about which companies can get their domain name and brand identity on the Web first and fastest; it’s also about which ones can keep up with the agonies of growth. And the winners are those that can actually get all of those products to all of those customers — accurately, swiftly, economically — and make sure that their customers are happy. That’s no simple task. It requires a lot: a lot of experience, a lot of equipment, a lot of people, a lot of networking — and, once again, a lot of experience. It requires what you can’t buy off the shelf.
The lesson of 1998 was that e-commerce was going to change everything. The amount of Web commerce vastly outpaced all expectations, achieving in the single month of August what everyone thought it would take the entire year to do. According to Forrester Research, online sales nearly doubled compared with 1997, vaulting from $5 billion to $9 billion — and that number is expected to shoot to $3.2 trillion or more by 2003. In 1998, online purchases made by women rose by 300%. The average shopper spent $629 online. The Gartner Group predicts that by 2003, almost all business relationships will be driven by the online infrastructure. Daniell himself estimates that one-third of the total U.S. economy is already being “reassigned” because of the Internet.
According to industry pundits, these numbers are a sign of the revolution that is upon us. According to OrderTrust, that revolution is old news. If the lesson of 1998 is that e-commerce has arrived, the lesson of 1999 will be that the arrival of the products of e-commerce depends on the coordination, the concentration, and the detailed hard work of an invisible back end — the part of the Web where Jim Daniell and OrderTrust make their living. To the people at OrderTrust, e-commerce won’t truly arrive until they deliver it. They are the people behind the people behind e-commerce.
In a year and a half at OrderTrust, Daniell has created an outfit that integrates all of the back-end order-processing operations for the business of e-commerce: finding products from alternative sources, expediting orders, keeping customers informed, handling financial settlements. All of that involves a lot of thorny specifics: taking care of credit-card authorizations, routing one order to multiple suppliers, routing status updates from those suppliers to customers, handling order cancellations and product returns, and pushing software development to keep improving all of these services. OrderTrust offers an end-to-end solution to any company that wants to hand over all of those worries to someone else. You fret about where to put the order button on your Web page; OrderTrust takes care of everything after that button gets clicked — and charges you a small fee each time that happens.
Here’s the model: Millions of people are buying things on the Web. OrderTrust doesn’t want to sell any of those things. In fact, OrderTrust doesn’t want to get rich on any one transaction. What OrderTrust does want is to make a tiny sliver of money every time someone purchases something on the Web — by making sure that the right order is delivered and that the people who provide the product get paid. OrderTrust isn’t working on the next killer app. It isn’t trying to devise a new operating system to bring down Bill Gates. It doesn’t even want to become the invisible hand of a new marketplace. OrderTrust is content to be the invisible fingernail on the invisible hand.
“I want to be the guy who makes the tips on the shoelaces,” Daniell says. “Everything depends on those things, but nobody even notices they’re there.” It doesn’t matter who sells the most shoelaces, because every shoelace needs one of those tips. OrderTrust falls into a class of companies — like Lucent Technologies and Cisco Systems — that sell to the people who sell on the Web. Put another way: In the new gold rush of the Electronic Age, with everyone frantic to stake a claim on the Web, Daniell is selling pans and shovels to prospectors.
His company is growing so fast that it frightens him a little. Daniell tells a story about the pleasures and the pains that accompany being in the right place at the right time. In December, he called a holiday meeting, a potluck dinner: Everybody brought a dish. The mood was supposed to be light. The order of business was to eat as much as humanly possible and then to doze off in the auditorium during the congratulatory toasts. A group of Christmas carolers came in. Everybody sang along. Daniell noticed that one woman from data processing seemed preoccupied. She ran data-management notification, an operation that keeps track of the status of every transaction that OrderTrust processes — maybe 250,000 transactions on an average day. During the holiday rush, that figure had rocketed to about four times that number. The woman approached Daniell.
“I’ve got to go,” she said. “I just got these notifications back. There’s an issue that I have to check on. A little batch of order notifications is waiting on it.”
Daniell was skeptical. A little batch? Couldn’t she do it later?
“I know,” she said. “It’s only 25,000. But still.”
Daniell realized that OrderTrust had just reached a new level: Twenty-five thousand notifications had just become “a little batch.” He stepped out of her way.
When it was his turn to talk at the holiday gathering, Daniell said: “We have a mountain ahead of us. You realize that we’re on a plateau after a long hike, but Mount Everest is up ahead. SkyMall’s business grew 600% this year. In all of 1997, we added 75 trading partners. This past year, we did that in a week and a half.”
The Land of Messyware
Here’s the space that OrderTrust is in: Calico Technology Inc. and others will sell you do-it-yourself order-processing software for e-commerce. Then other companies have to come in and integrate your system. OrderTrust offers a total outsourcing solution. You hand over the back-end details to OrderTrust — and then concentrate on your brand identity and on your sales and marketing.
It’s an offer — a space — that makes a lot of sense. There is simply no reason for most Internet companies to do back-end operations on their own. Daniell explains: “We offer those companies the chance to pay per drink, rather than to spend a lot of money up front. To build, deploy, and operate an order-processing system would cost the average OrderTrust customer at least $1.5 million a year. We sell that same capability to the same customer for $25,000 to $100,000. Cost is a huge barrier to entry. We reduce that cost by applying a surcharge to transactions with hundreds of customers. A typical transaction might cost one of our customers a buck, and the price goes down as the volume goes up.”
At the moment, OrderTrust is still a rapidly growing company. Yet it has an illustrious history as the latest incarnation of Litle & Co. — the company that, in the 1980s, made it possible for catalog merchants to make money. In a way, Litle & Co. was the invisible force that made direct marketing a reality. And e-commerce is less a revolution than the latest version of direct marketing.
In the 1970s, founder Tim Litle saw how banks were taking advantage of catalog merchants: The merchants gave their order slips to the banks, and the banks handled everything from there and sliced 2% — a big chunk of what was already a very tight margin — off the top of a merchant’s revenue. In addition, some banks were actually stealing from the merchants. They lied about bad orders, and they inflated their cut. Litle saw how computer technology could put knowledge and power into the hands of the merchants, making the whole process transparent so that the merchants would know exactly how much they owed the banks. Litle handled the orders, made all the numbers visible to everybody, and turned a bigger profit for the catalog companies. He quickly cut the banks’ charges in half, simply by making the transactions electronically verifiable. With one stroke, Litle used computers to turn the catalog business into a thriving industry, and, in the process, he became a legend in direct marketing — a savior. He created the installed base of technologies and relationships that has become OrderTrust.
Now OrderTrust has a new mission. While still handling orders the old way — for call centers and for catalogs — it has set itself up as the Hotel California of e-commerce: You can check in any time you like, but you can never leave. Once you go through the door and become dependent on what OrderTrust offers, there’s virtually no exit. Besides, it’s so comfortable inside, why would you want to leave? No one else comes close to doing what OrderTrust can do.
OrderTrust has more than 400 merchants in its network, including 1-800-FLOWERS, iParty, and Lycos, and it manages the links between those companies and their suppliers as well. All of these organizations are connected to, or are trading partners in, the OrderTrust network. The company has invested tens of millions of dollars to develop a constantly evolving control room, complete with hardware and state-of-the-art order-processing software — high-end C++ code, with CORBA objects communicating with XML messages. And it knows exactly how many copies of that software to run simultaneously during heavy order periods, such as the Christmas holidays. What’s more, OrderTrust has developed spiderweb flowcharts to enable constant improvement of the software systems that it has created.
Yet the company has also established a network of offstage partnerships with gritty, unglamorous operations that help generate the electricity needed to animate the whole Frankenstein monster of e-commerce: Web masters, drop-shippers, fulfillment warehouses, database managers, credit companies. You buy into the OrderTrust community, and you can do almost anything with a very small capital investment. The result? The barriers to entry into e-commerce fall away: You work on your brand image and decide what you want to sell and which customers you want to target.
This isn’t solution-in-a-box. It isn’t software. It is a messy, complicated, real-world way of speeding up the process of doing business on the Web. The world of e-commerce right now is like something out of the movie Brazil: Down in the basement, OrderTrust works invisibly, with pneumatic tubes and an abacus in a corner and wires and plumbing hanging down, as well as all those T1 lines and servers and cable modems. One floor up, all the Web masters are at work, wearing torn jeans, sporting earrings and tattoos, and cranking up the latest Pavement CD on their stereos. One more floor up, the customers are basking in surround sound, surfing all day on the Web, and enjoying virtual access to anything, anywhere, anytime. Those upper floors depend on the basement. And OrderTrust wants to own that basement.
If you want to do what OrderTrust does, you need to be able to handle orders in any imaginable way: with FTP or EDI, over the Web or over the phone, via email or fax or postal service or carrier pigeon. Name the method: OrderTrust handles orders in that way. Some merchants practically send their orders by taxi, while others use the latest electronic code. Only one-third of the transactions that OrderTrust processes come directly from the click of a button on a Web page, even though virtually all of the orders involve the Internet at some stage of fulfillment or billing. There is no standard way of doing anything. Daniell has a name for this conglomeration of nonstandard procedures: messyware.
OrderTrust lives in the land of messyware. Its job is to keep taming new forms of human and technological complexity. OrderTrust’s 2,500-square-foot computer room looks as sophisticated as an airport control tower, with millions of dollars worth of the most advanced hardware and software — banks of monitors that track every stage of order fulfillment and billing for its customers. There are 50 different audit points along the way that screen for fraud, verify addresses, manage installment billing, or handle returns and cancellations — all making it possible to know exactly where each order stands, as well as handling every imaginable task and headache, just to satisfy a customer. Yet the system is loose enough for people to handle orders by phone, by fax, by whatever means the customer uses, no matter how retrograde. It’s messy, but the whole thing is designed to keep the OrderTrust customer in business, satisfied, and able to scale up to more efficient and advanced order-processing systems at whatever pace the customer desires.
Life at the Extremes
Daniell knows how success feels. He’s also familiar with the way things sometimes seem to fall apart, even as they seem to be coming together. He’s only 35, but when he worked for AT&T (before Litle & Co. hired him away in 1997), his official title was chief operating officer for networked-commerce services. He called himself “chief strategist hump.”
While at AT&T, he flew around the world for meetings with dozens of high rollers, such as Intel’s Andy Grove and Oracle’s Larry Ellison. He was chauffeured around in Third World nations. He worked for an $18 billion business unit, with 35,000 people. And he helped guide AT&T in its move online. One day, in Geneva, Switzerland, he woke up with a pain in his joints that was so bad that he couldn’t move. He labored so hard at creating new business for the telecommunications giant that he developed palindromic arthritis. Stress was causing his immune system to destroy his body.
But Daniell’s jobs have always been at the extremes of business. Before his high-flying job at AT&T, he owned his own company, Bridge Builder Technologies, a software developer in Wellesley, Massachusetts. At that company, he had only a dozen employees and used rental cars when he needed to travel.
Growing up in Connecticut, Daniell learned about business at the dinner table. His father, an accountant, would pepper him with questions: “Which would make more money, son — a gas station or a mom-and-pop grocery?” Daniell knows all about the serious life-or-death hunt for money that all businesses face. He manages OrderTrust as if the fate of the world rested on its success. In reality, he’s Hurricane Jim. At OrderTrust, either you work one notch this side of insanity, or you don’t work at all. One of Danniell’s people compares him to the Maxell ad campaign. Daniell is the music, blasting at a hypersonic level. OrderTrust’s employees are the guy in the armchair, with his hair blown back.
Everything that Daniell has ever done — including his formal education — has taught him the same lesson: Pay close attention to everything around you. Appropriately, he got his PhD in electrical and computer engineering at Carnegie Mellon University, where he studied VLSI (very large system integration) design tools. And, to this day, he is a systematic note taker. He carries a spiral notebook, the kind that college students use — the same kind he probably carried in college. On the front, in neat penmanship, he’s written “Jim D.,” along with his address. That way, if he loses it, whoever finds it can return it to OrderTrust.
His whole manner — his big eyes, the somewhat quirky way that he pronounces his words — is deceiving. He can be warm and even manic when he wants to be. On the surface, he looks open and easy to get along with; underneath, he’s embattled.
He’s in his office, interviewing a candidate for chief financial officer. “So say we’re going into a meeting with VCs. I want an unfair advantage against these people. How would you approach a brutal round of financing with these guys?”
There’s a pause, but the job candidate doesn’t miss a beat.
“I’d create a bidding war,” he says.
Not a direct answer, but not bad. There’s enough realpolitik in it to show that he heard what was actually being said.
“Have you ever taken a company public?” Daniell asks.
The interview is officially over, although Daniell politely keeps the conversation alive for another quarter hour. He needs someone who’s been through an IPO before. He needs somebody who would bring to the negotiating table the sort of experience that OrderTrust brings to its business. And he just may need every last ounce of negotiating skill that he can hire, because the company just may need some money to get it through this year.
The recent history of OrderTrust sounds a lot like most recent startups. In 1996, Tim Litle sold off the parts of his operation that he didn’t need and created the groundwork for OrderTrust. He then hired Daniell, who got the system up and running for Web merchants by the 1997 Christmas season. The system may have popped a few rivets, but, in the end, it got everyone into port. OrderTrust had revenues of more than $1 million in 1998. Daniell expects revenues to triple in 1999.
During the first six months of 1998, OrderTrust generated 1,000 leads for new business. In July alone, it generated 2,000 leads. By the end of November 1998, it had processed $10 billion in transactions for its customers. Every quarter, it hands out stock options to its 130 employees. Daniell gets calls every few days from investment banks that want to help him raise cash for expansion, with an eye on OrderTrust’s potential for growth.
Those bankers have good instincts. OrderTrust is growing as fast as a company can grow — but still, this is the Web: The company still isn’t making money.
Fingerhut Plays Its Hand
OrderTrust has one significant competitor: Fingerhut Companies Inc.
About a year ago, the large catalog company entered the same market niche that OrderTrust occupies. Now, through its Fingerhut Business Services division, it has become a complete order-processing network, offering to do for other companies what it does for its own catalog business. The numbers sound a bit daunting. Whereas OrderTrust has 130 employees, Fingerhut claims to have 10,000, and it boasts some other big numbers as well: 3.6 million square feet of warehouse space, a fulfillment system large enough to move 60 million packages a year through eight telemarketing centers — with room for a total of more than 2,300 telemarketers — and a vast inventory-and-fulfillment operation of its own.
As it turns out, Fingerhut created much of its order-processing business by mistake. At one time, Fingerhut wanted to go into the television shopping business and become another QVC. When those plans changed, it aimed all its software, floor space, and energy toward order processing. “It’s an accident that we ended up with all this infrastructure. We had to figure out what to do with it,” jokes William Lansing, 41, president of Fingerhut. “If a brick-and-mortar store wants to go direct, it can spend years and a lot of money and still not do it right. Right now we have 12 customers — Intuit, U.S. Satellite Broadcasting, and several bigger ones whose names I can’t disclose.”
Lansing sees his order-processing operation as simply the next level of effectiveness for direct marketing: It’s fulfilling direct marketing’s promise of pinpoint customization as a way of connecting supply to demand. “We’re taking this whole direct-marketing infrastructure and pointing it at the Internet,” he says.
Revenues topped $10 million in 1998, and Lansing expects them to reach $50 million in 1999. That’s about a year ahead of OrderTrust in volume, although the two companies are on an equivalent growth curve. Fingerhut, however, doesn’t share OrderTrust’s vision of helping to transform the way business structures itself. Fingerhut is taking new technology and processes and applying them to the old business model. Lansing is quite open about his intentions: He doesn’t want to deal with small businesses. He wants a dozen, maybe two dozen, large and elite clients, and that’s it. He wants to do mega-business with mega-merchandisers and maybe sell out to Amazon.com — if he’s lucky. “Who knows what will happen in the future?” he says. Nothing could be further from the visionary spirit at OrderTrust.
Own Nothing, Sell Anything
Daniell believes that what he’s doing is far more complex than providing a simple service for the existing ways of doing business. He sees OrderTrust as a company that shows how to change the way every business operates, through an automated network that links business functions that used to be contained under one roof.
In a typical, vertically integrated organization, such as Fingerhut, all functions — research, development, marketing, public relations, sales, purchasing, inventory, production, and more — are organized under one ownership, if not under one roof. In the new distributed model, those functions can be owned separately but operated and connected through virtual linkages. You can break down an organization into smaller and smaller parts — until (theoretically) each employee could be a free agent, representing his or her own company, living and working anywhere on the globe.
If you take this vision to its extreme, the world will have, say, five or six giant Web portals — AOL, Amazon.com, At Home, Go, Yahoo!, and so on — which will have extensive and detailed knowledge about millions of customers. Those portals will become the most powerful members of the demand chain. Their job will be to generate greater demand for better products. As those portals gather and process more and more information about customers’ likes and dislikes, they generate demand by earning a buyer’s trust and loyalty. The people at OrderTrust can already hear the new war cry for the demand side: Own nothing, sell anything.
“How quickly can you package virtual inventory so that you can deliver it quickly, so that any marketer can sell anything, anywhere, at any time? That’s the target,” says Tom Litle, 33, OrderTrust’s president and the son of Tim Litle, the company’s founder. “When everyone has infinite shelf space, the question becomes ‘How do you manage to distinguish yourself?’ “
Simple: by knowing more customers more intimately than your competition does — and by knowing how to use new information about those customers as it becomes available.
Web portals will be better positioned than any other value-added reseller to gain this intimacy. A second tier would comprise sellers who would work almost exclusively on refining their brand identity, on focusing on marketing efforts, and — like the portals — on becoming more knowledgeable about the desires of customers. Their expertise would rest, as well, on generating demand that’s based simply on trust — on the value and style that their brand offers. They would subcontract and network for the actual production and delivery of products bearing their name. Eddie Bauer, for instance, started by selling clothing and now puts its signature on coffee mugs and sport-utility vehicles.
At the other end of the spectrum, where the supply chain thrives, there will be smaller and smaller producers of extremely individualized products. Because of the increased quantity and quality of information about customers made possible by the Web, and because of an increased ability to connect those customers with any and every supplier and to customize each order, the level of demand will support greater and greater specialization. On the supply side, millions of small-business owners will have ownership of a core competency, which will in turn be refined to the point of absolute specialization: That’s where competition gets slim.
“There will be a global oversupply of almost everything. Value will accrete to people who own demand,” Daniell says. “These people will try to sell everything. We help these people focus on sales and marketing: We help them generate demand by connecting them to supply and taking care of that end.”
The result of all this? The entire supply chain (or supply network) gets reinvented. “The demand chain is where the power is forming,” Daniell explains. “That means, on the supply side, that you can get rich doing something that seems really small. That’s what’s great about America: There are all of these little niches. It’s now possible to make a million bucks by being really good at doing the tiniest things.”
OrderTrust wants to connect virtually everyone on the supply side with everyone on the demand side. An order-processing operation should not only help members of a network connect with one another; it should also handle all the funky details of getting products and services from the people who provide them to the people who want to buy them. In the meantime, it frees up everyone on both sides to do what they do best: making or doing something better than others make or do it — or finding people who would want to buy that particular product or service.
The result for the supplier — the producer — of value is that he can make lots of money by doing something really well. Someone who had been working in some small department of a huge corporation for a wage can now work out of his own shop and make all the connections he needs, because he’ll be linked to others through an electronic network. Now he is free to do what he does better than anyone else, and he can charge a premium for what he does. He will own what he does — if he does it better than anyone else. On the other end, the buyer gets ease of purchase, a low price, fast shipping, and all the other values of Web commerce. In the middle are companies like OrderTrust, which coordinate everything that ties supply to demand, without adding nearly as much of a markup as intermediaries did in the past.
Web-based commerce cuts out layers in the stack of functions that fall between production and sale: intermediaries, distributors, warehouses full of inventory. Ultimately, the perfect Web business would take an order, send it along with its specifications directly to the maker of the product — as Gateway already does with personal computers — and have the product made and delivered within a day. That process eliminates virtually everything except the product’s maker and buyer — with a Web interface in between, reaping the margin from all of those eliminated layers.
Let’s Get Granular
The room for growth is enormous. It’s simply a question of how quickly merchants can either get started on the Web or transfer their operations into cyberspace.
“It’s all about speed,” says Mark Goldstein, CEO of Impulse! Buy Network, a merchandising service that places ads and takes orders on almost 200 Web sites for discounted name-brand products. “My core competency isn’t processing orders. If I had to do that myself, I’d never be able to compete.”
By partnering with OrderTrust, Goldstein was able to start operating four months after coming up with the idea for his business. The 38-year-old entrepreneur sees the outsourcing of order-processing as essential to ramping up as quickly as he did. He also sees value in delegating the back end of his business to someone else.
“We can focus on customers. We can focus on doing only what we do best — and nothing else,” he says. “On the Internet, you can pinpoint people. You can find out who your potential buyers are. Eventually, a service like ours will provide ‘deal mail,’ where every offer is personalized to the individual. It gives buyers the power to get exactly what they want. A Web page lets businesses learn more about customers who buy from that page, and it allows those companies to build a customer list.” Goldstein calls it “getting granular.” Selling over the Web enables retailers to target individual offers — to market to each grain of sand on the beach.
The Race to the Standard
When Jim Daniell looks at the world of e-commerce, he feels the way Bill Gates must have felt when he realized what the Web would mean and what he needed a browser to do. Daniell, like Gates, may become another beneficiary of a new law of economics that applies to certain sectors of high technology: Speed-to-market matters. The irony is that you don’t need to be the best. You just need to be there fast and to create a dependency on what you offer. You produce a new system that becomes a standard that others must adopt in order to deal with people who are already using your service or product, and that process snowballs until the majority of users are dependent on your system. Microsoft’s Windows operating system works that way: It works with more software choices than any other system, and it has helped standardize the entire computer environment. And so may OrderTrust standardize the way e-commerce gets done — if it wins.
Daniell has more than a leg up on the competition. He presides over something like a closed system of relationships with various segments of both the supply chain and the demand chain. A direct competitor would need to develop the same kinds of relationships, and to raise millions of dollars to buy computer equipment and office space and to hire employees. And that competitor would also need to develop proprietary order-processing software and complex work-flow patterns. Except for a company like Fingerhut, which already has much of that in place, the barriers to entry are huge.
“We’re hoping to become a $100 million company pretty quickly,” Daniell says. “It’s not a matter of ‘if.’ It’s a matter of ‘when.’ We’re envisioning an 80% market share. We have a tremendous strategic advantage. We’re the first people in this space. And we’re at the right place at the right time. We’ve already scaled up. We aren’t bootstrapping. We’re already at the root of all these relationships — connecting the supply chain to the demand chain.”
No one in the e-commerce community has really been around long enough to disagree with Daniell. It’s conceivable that Fingerhut and OrderTrust, with their contrasting strategic visions, can coexist for a while — or forever — serving the old and new business models, respectively. “This is part of a whole trend that we’re seeing in e-commerce,” says James McQuivey, a senior analyst with Forrester Research. “In this environment, there is a role for a new intermediary that connects one side of the fence to the other.”
McQuivey cites a number of new services that do something similar to what OrderTrust does. Shopping bots on the Web sign up hundreds of service or product providers and then scan through them for the lowest prices — making it easy for consumers to get the lowest price as quickly as possible. Inktomi offers a way for Web sites to connect users to more than 300 merchants instantly. DoubleClick Inc. places banner ads on Web sites for its customers, much as ad agencies conduct media buying for their clients: It negotiates for the best rates and develops long-term relationships with various sites. LinkShare Corp. places points of sale on media sites, enabling individual merchants to have an order button placed on someone else’s Web site.
None of these services does exactly what OrderTrust does. But they are all moving into the same space — where demand links to supply in new ways on the Internet. “These services are all part of a growing spectrum of more in-depth services. First you could see an ad for an unrelated product on a Web site. Then you could use a shopping engine to find the best price — which put more power into the hands of a consumer. And, ultimately, you could actually buy things from more and more Web sites. OrderTrust will handle everything that happens after the sale,” McQuivey says. “All of these companies are sitting on gold.”
Does OrderTrust already have a lock on this market?
“It hasn’t achieved escape velocity yet,” McQuivey says. “Once it does, nobody will be able to offer a competing product. OrderTrust is in an interesting position: No one else can compete with it. Yet what it does dramatically increases competition for everyone else on the Web. OrderTrust isn’t a company so much as it is a marketplace. Imagine a city in the past, where people had to go door-to-door to sell products. Somebody comes along and says, ‘Let’s clear out the center of town and call it a marketplace, a place where everyone can go to buy and sell.’ Whoever thought of that would have no competition, although someone could do the same thing in other cities. With the Web, though, there’s only one city.”
David Dorsey (DEDorsey@aol.com) is a frequent contributor to Fast Company. You can visit OrderTrust on the Web (www.ordertrust.net) or contact Jim Daniell via email (firstname.lastname@example.org).
Sidebar: Messyware Here
What do people who are setting up shop on the Internet need to know about e-commerce? We recently talked with Jim Daniell, CEO of OrderTrust, to get his advice, based on his perspective from the land of messyware.
1. Think beyond the Web site. “Very clearly, step one is to create both a compelling Web site and a strategy that generates demand. You have to be able to get a sufficient number of browsers in your front door. Step two is to turn browsers into buyers. To attract a first-time buyer, you need to have excellent merchandising skills. To get repeat buyers, you need to create loyalty and to perfect your relationship-marketing skills.”
2. Aim for satisfied customers, not gross sales. “Successful e-commerce players have to be great merchandisers. Many vendors now focus only on gross sales. But the farther you go into the world of e-commerce, the more you realize that satisfied customers, and therefore customer service, are what really matter. The economics of failure are much more severe than people realize. Let’s say it costs you $80 to turn a customer from a browser into a buyer. If you make that customer unhappy by the way you handle — or don’t handle — an order, then you’ll not only lose that order; you’ll also lose the orders of additional customers. A rule of thumb is that a disgruntled customer will tell 10 friends not to shop with you. So you will have lost $880 worth of acquisition costs. How much do you have to earn to recover your $880? If your business has a 10% profit margin, you’re looking at having to make $8,800 in sales — just to recover from one mistake.”
3. Determine your Web identity. “We’re going to see three very distinct players on the Web: niche specialists, product aggregators that offer one-stop shopping, and audience aggregators that sell products in the context of community affiliations. The success of all three will still hinge on customer service. If your service is poor, you’ll struggle to become profitable, since you don’t usually make a profit with a customer until the third purchase.”
4. Learn to leverage the logistics. “In the time that I’ve been at OrderTrust, I’ve become a much more aggressive student of the back-end infrastructure. When you go to the massive warehouses that serve as pick-pack-and-ship facilities, what you actually see is data being moved around. This is not a group of Gen-Xers on Rollerblades who are listening to funky music on their headsets while picking stuff out of boxes. These are huge operations with 10 or 20 acres under one roof, using sophisticated technology to move information and products from picking points into boxes, into packing systems, and out to shippers. You see the same kind of speed, technology, and sophistication in call centers. For a lot of people, e-commerce ends at the Web site. But when you see everything that goes on behind each Web site, you begin to appreciate just how complicated e-commerce actually is.”