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1995 | 08 | 20 | Articles | The News & Observer | Business | Technology
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The News & Observer (Raleigh, NC)
August 20, 1995
Page F1
Business edges into the Brave new cyberworld
Companies are increasingly doing business on the Internet. But not many are making money as a result - yet.
By Stewart Ugelow

The Internet could be the newest commercial frontier, where pioneers strike gold every place they tread.

Or it could be a treacherous and deadly landscape, swallowing up trailblazers and setting in motion costly financial flops.

Welcome to the world of cyberbusiness.

It’s easy to get caught up in the hype of the Internet as companies in the Triangle rush to go on-line. But, so far, success stories are few and far between as companies tentatively explore the intricacies of Internet commerce.

In fact, many companies have found they are more likely to use the Internet to save money rather than to make money.

"I don’t know of many nontechnology companies that are doing much revenue through the Internet in the area right now," said Cliff Allen, who advises companies on their on-line efforts as president of the Allen Marketing Group in Raleigh.

In the extraordinarily brief commercial life of the Internet, the people who have made money are Internet access providers, World Wide Web page designers and the cottage industry of consultants and speakers.

That’s about to change.

As the Internet moves from the playground of scientists and hackers to a robust business community, this could be the year that real fortunes are made and lost on the Internet.

"More and more people are going to be sitting in their living rooms browsing the Net," said Sarah Gray Lamm, manager of the Home Team Properties Inc., a Chapel Hill real estate company that launched a Web site with property listings last month.

Like most aspects of Internet commerce, market research is an emerging field, and no figures are available for measuring Triangle business activity on the Internet. But total sales on the Internet worldwide from September through July were $118 million, according to a survey of more than 650 Web sites by ActivMedia, Inc., a Peterborough, N.H., research firm. That figure is expected to skyrocket for the next few years.

"There is a novelty feature to ordering flowers or nontechnology merchandise over the Net," Allen said. "But there’s also no competition."

If the Internet has been a rough-and-tumble world so far, a semblance of order is about to arrive, in the form of big business.

Visa and MasterCard have teamed up to develop secure transaction software to prevent hackers from picking off credit card numbers. Several banks are exploring creating cyberbanking divisions. Wall Street has started to pour capital into technology companies.

With these developments comes a new critical mass of users. All the major commercial on-line services have pledged to offer full access to the Web by the end of the year. The newest online service, the much-touted Microsoft Network, could add another 9 million users to the Internet’s estimated population of 30 million users worldwide.

While electronic mail addresses pop up routinely on business cards from Research Triangle Park, more nontechnology companies in the Triangle are now considering establishing a presence online.

"It’s those merchants that are trying to decide whether they need to be up or not," Allen said.

Those Triangle companies that have ventured on-line have found a variety of ways to integrate the Internet into traditional business strategies. And some of them have learned something that Internet business evangelists don’t share very often: Most companies on the Internet aren’t trying to make money - they’re trying to cut costs.

Web sites can save staff and processing time, mailing and printing costs, and even long-distance phone bills, especially for calls overseas.

For instance, American Airlines, which launched its site May 18, has placed flight schedules on-line and plans to allow frequent fliers to check account information by the end of the year.

Initially, the airline hopes to speed up the reservation process at its five reservation centers, including its 1,400-employee operation in Cary.

"The concept is really to reduce the cost of business as much as possible," said Joe Crawley, the site’s webmaster.

Far more important are American’s plans to offer electronic booking of flights early next year.

In an industry where commissions to travel agents are the third-highest cost after labor and fuel, electronic booking could increase the number of tickets issued directly by the airlines, now just 20 percent. One day electronic booking could supplant reservation centers and travel agencies entirely.

Not to be outdone, a number of travel agencies have taken to the Web as well. PCTravel, a service of Raleigh’s American Travel Corp., has perhaps the most sophisticated system. Consumers can search for the cheapest flight and can reserve and buy tickets. PCTravel expects to do $2 million worth of bookings per month for this year, said David Lea, American Travel vice president for marketing.

But a major problem for PCTravel and other Triangle companies that sell goods and services on-line has been the continuing concern over the security of information transmitted over the Internet.

Technological advances in security have been unable to dispel a public distrust fueled, in large part, by the February arrest of hacker Kevin Mitnick in a North Raleigh apartment on charges of stealing 20,000 credit card numbers from the nation’s largest Internet access provider. PCTravel, the Durham Bulls and a number of Triangle businesses have turned to a new cyberbanking unit of First Union Corp. in Charlotte for help.

First Union is providing help for on-line transactions such as credit card verification and transaction security. The company also plans to tackle business-to-business transactions and soon will announce new cash management software that will enable corporate customers to check account information over the Internet.

"We want to be where our customers are," said Tom Kitrick, First Union vice president for strategic planning and Internet marketing. "What’s driving this industry is, how can businesses use the Internet to make their transactions easier?"

Another industry being driven by the Internet is marketing.

The Internet is a marketer’s dream tool. Precise files on individual users can be kept easily. The demographics are to die for. Web users are well off, with an average income of $69,000, and highly educated, with nearly 35 percent having completed college and almost 32 percent more earning an advanced degree, according to a University of Michigan-Georgia Tech study.

At WRAL-FM 101.5, a promotion to give away tickets to the movie "The Net" demonstrated just how powerful a marketing tool the Internet could be.

Listeners were asked to go to its Web site, leave a mailing address, and to fill out an optional survey. The station mentioned the offer on the air just three times in 30 hours.

"We were going to leave it up for a week, figuring we would get 20 responses," said Ned Attayek, an announcer who designed and maintains the page. "We put it up at Monday lunch and by Tuesday suppertime, the tickets were gone."

The station gave away 211 tickets and collected valuable demographic data in the process. And WRAL did it all without devoting staff time or hiring a marketing company to conduct the research.

"We were amazed. We’re trying to figure out how to make some money off this page," Attayek said. "It’s obvious that it’s an incredible marketing and promotion research tool."

It’s also an incredible tool for entrepreneurs like Gary Storr and two co-workers who launched a Web service called America’s Help Wanted to assist companies in their recruiting efforts a month ago. They expect to charge companies to post job openings and to buy resumes of qualified candidates from a searchable database.

"We’re hopeful that we’ll be able to get to a point where we can support this on a full-time basis," Storr said.

Venture capitalists are quite interested in the activities of Storr and entrepreneurs like him.

Internet start-ups received $47 million in venture capital financing in the first quarter of this year, $5 million more than all of 1994, according to a study by Venture One, a San Francisco research company.

Venture capital investments in Internet-related companies are growing about three times as fast as biotech investments did in the late 1980s, said Venture One spokeswoman Caren Cadile.

But before entrepreneurs or established businesses order business cards to go with a new Web site, they should take the time to do some old-fashioned research by spending some time on-line, posting messages and answering questions, Allen cautioned.

"When you get an e-mail asking for your catalog, you’ve found a market. When you get e-mail asking for your Web site, then it’s time to get a Web site," Allen said. "It’s the simplest market research you can do."