We Don't Need the Net

What if, in some weird parallel universe, you didn't have to scramble to put your company on the Internet? What if it was OK to just keep doing business the good old-fashioned way, the way you've been doing it, profitably and successfully, for decades? You know, serving customers in person, maintaining a distinct brand, offering a unique shopping experience or unrivaled service—stuff like that.

You wouldn't need to be totally backward and reject all technology. You could still use computers to run your operations. And you'd have a basic Web site. This is the 21st century, after all. But putting your bread and butter in a browser? What if you just said "No thanks"?

Radical? Increasingly, yes. Suicidal? Not necessarily. We found four smart, successful companies that carefully considered their own goals, looked closely at the way business works on the Web, and decided that they'd get along fine without it. Each of these companies—furniture retailer Ikea, stockbroker Edward Jones, high-tech financial information provider Bloomberg, and jeweler-to-the-stars Harry Winston—has valid reasons for its decision. So don't call them backward. Call them Web-commerce realists.

IKEA: Shopping as Entertainment

You'd think Ikea and e-commerce were made for each other. The genius of the Swedish furniture retailer's business model is sandwiched in its flat-packed, assemble-at-home bookcases, beds, and cabinets, which slash the cost of its products by "not shipping air." Ikea stores double as warehouses. It would seem the company has solved the shipping problems plaguing most e-tailers.

Ikea has a robust catalog business, another helpful precursor to online sales. And many of its customers are hip urbanites—the very pioneers of e-shopping—who may drive an hour or more to get to one of Ikea's 15 U.S. stores. But at Ikea.com, all they'll find are some suggestions for kitchen cabinetry and directions to the nearest store.

What gives? Ikea execs say the sparse Web presence is all part of the plan.

Rich D'Amico, head of new business development at Ikea, says loyalists consider Ikea stores to be a "form of entertainment." He says, "We don't want to disappoint people. [Shoppers are] used to seeing everything under one roof—from the kitchen sink to the soup bowl." Ikea stores are built for browsing—with aisles that snake past odd-shaped furniture and colorful, tactile fabrics, in designer-coordinated rooms—in a way that the Web may never be.

James Crawford, online retail analyst for Forrester Research, concurs, saying that Ikea's stores are as central to its business model as any of its products. "Ikea is an experience. These other channels"—the catalog, Web site, and advertising—"exist to get people into the experience," he says.

Ikea has 160 stores in 30 countries. Worldwide sales hit $8.5 billion in 2000. It started over 50 years ago in Sweden as a mail-order catalog offering high-quality, affordable furniture. The company kept prices low by passing on certain costly tasks—such as transportation and assembly—to the customer.

That strategy doesn't move to the Web gracefully, even though Ikea has catalog and shipping operations in place. It distributes catalogs in stores and by mail only to store customers, clustering catalog sales near store locations. When delivery is required, Ikea negotiates a flat fee, less than $100, with small, local moving companies. Apart from Chicago and Houston, all Ikea's stores are on the East and West coasts, providing no obvious way to ship furniture to places like Ohio and Kansas without the costs pricing it out of its own market.

"We're not in the home-delivery business, we're in the furniture business," D'Amico says.

Ikea does have what it calls experimental e-commerce capabilities on its North American Web site, but those seem designed more for market research than customer convenience. A form on the site requires typing the product name (Ikea products have names like Iggesund and Björket, derived from Swedish lakes and mountains), the catalog page number, its dimensions, color, description, and price. Then, after clicking on Place Order, customers must wait approximately 24 hours for an Ikea representative to call them for their billing information.

Next year the site will provide planning tools for the kitchen and home office, which HomeDepot.com already offers. "Yes, Home Depot has done some good testing, and, sure, Wal-Mart's going to step up," says D'Amico. "But we're trying to do this the Ikea way. Oh, we've had [Internet] consultants ringing our phone off the hook. When people were rushing, we slowed down even more."

EDWARD JONES: Personalized Service? How About Personal Service?

"We shot ourselves in the foot—and missed," jokes John Bachmann, managing partner of Edward Jones. Translation: The venerable stockbroker decided to keep its business offline, and despite the regret that might have followed that decision, everything has turned out fine.

Since its founding in 1871, Edward Jones has built its business on a grassroots, branch-office model, with salespeople going door to door hawking investment opportunities. Sticking with its focus on family-based financial planning and long-term investors meant forgoing the development of online trading or even interactive account management beyond the basics, like checking an account balance or sending e-mail to a hometown broker.

"It wasn't a popular view a few years back," says Bachmann, "but our proposition is relationship. For us to build a channel that goes around our basic proposition just doesn't make sense."

Until recently, other full-service brokerage sites weren't that different from EdwardJones.com, explains Robert Sterling, a senior analyst at Jupiter Research. When Merrill Lynch started offering services online in August 1999, other investment houses followed suit, leaving EdwardJones.com as the lone "brochureware" site.

"Now here's part of the problem," says Sterling, pulling up the site. "I go to the section called 'Find a Local Rep' and it gives me a name, an internal e-mail, and that's about it. You can't open an account online and you obviously can't trade. There is just no seamless road to becoming an Edward Jones client, which is what they ought to be aiming for."

Bachmann disagrees. He even cites the Internet as a potential detriment to his company. "Our Internet strategy is to support our core business, not to create a different distribution channel," he says. "Those other firms are almost in competition with themselves. They're cannibalizing their own customer base. The Internet turns services into pure commodities. Then the only way to compete is on price, and it squeezes the profitability out of the business."

Edward Jones has opted to forgo the online war for market share, even if it means ceding what it considers a small amount of extra business. "In almost any endeavor there's going to be about 15 percent that aspire to do-it-yourself," says Bachmann. "Maybe because of the low price or maybe they're just really good at it. It's a perfectly legitimate market that's not going to go away, but that doesn't mean it's going to be half the market."

Dennis J. Ceru, director of retail brokerage and investing for TowerGroup, a financial services research firm, says that the first blush of online trading is over, with disillusioned investors forcing firms back to more traditional models. "There is a real need for more true financial planning, more true risk management, all of the things that the conventional brokers did," he says. "And now, in order to do those things on the Internet, these discount firms are having to create new fee structures."

For now, Edward Jones is content to promise the addition of a few more online services—those that don't come between broker and client, like paying bills.

"The Internet is a very important part of what any successful company has to master in the future," says Bachmann. "But we, as has always been our custom, are content to not do all the business." In fact, he says, Edward Jones estimates it has lost only 10,000 of its 4.7 million clients to firms like Schwab, E*Trade, and Ameritrade.

BLOOMBERG: For a Price, It's Still Better Than the Web

Before the web, Michael Bloomberg (pictured, right) built his own information superhighway. With the $10 million that Salomon Brothers gave him when it fired him in 1981, he created a private network of real-time information and data terminals that would become a vital tool within the finance community. Bloomberg sold more than 100,000 terminals to stockbrokers, bond traders, and institutional investors, who each paid more than $1,000 per month to get information they couldn't find anywhere else.

Then came the Web, along with a new ethos. Suddenly, cyberexperts proclaimed, information must be free! Or, at least, it must be dirt cheap. All at once, pricey, proprietary networks like Bloomberg's were viewed as endangered species.

"Now Bloomberg faces what could be his biggest challenger: the Internet," wrote Fortune magazine in 1998. "The Internet lowers the barriers of entry into his business. Rather than raising capital to install pricey equipment, startups like MoneyLine simply send out content over the Net."

"By forcing his customers to take a one-size-fits-all product, this self-styled information revolutionary risks becoming an anachronism in the era of the Internet," added Wired, which showed in detail how essential features of Bloomberg's costly terminals could be replicated by free or low-price Web sites.

Bloomberg's terminals were anachronistic—and remain so today—requiring cryptic text commands instead of offering a more intuitive graphical interface like Windows. "We had to build the technology," says Tom Secunda, head of global sales and a founding partner at Bloomberg LP. Adds Jeffrey M. Cohen, a Bloomberg sales executive, "In the early days there was a manual, but by the mid-1980s it was so thick that people would just say, 'Oh my God! I've got to know all this just to use this simple service?' So we just stopped making [the manual]." Everything from the networking protocols to the interface had been designed from the ground up.

But faced with its so-called biggest challenge, the company held out. Michael Bloomberg viewed the Web as a growing network that might, if it ever became reliable enough, make it cheaper to move information from his databases to paying customers at Bloomberg terminals. But he refused to make his core service available through a Web browser or adapt its proprietary data to standards like HTML.

Bloomberg.com does offer stock quotes and a news feed. But the deep, unique data that subscribers pay to access via the Bloomberg terminal has never been available on the Web. And even while Bloomberg reporters churned out stories about new-economy IPOs, Bloomberg LP never went public or changed its original course of delivering proprietary data at a premium.

It's now clear that reports of Bloomberg's demise were greatly exaggerated. The online services that supposedly allowed users to replicate a Bloomberg terminal on the cheap are now hanging on for their lives. And everyone is struggling with how to get Internet users—nurtured by the concept of free information—to pay for it.

Bloomberg has learned to trust the Interet a little. The company's clients can install Bloomberg's software on laptops and get to information via an Internet connection. But this service isn't cheaper: It costs extra. And now there's a browser built into Bloomberg's software, not to access the company's own data, but to let users click out to the Web.

"Whatever issues you might be thinking about with regard to how difficult you seem to think Bloomberg is, they're clearly not obstacles to our selling success," says Cohen. "If the source is Bloomberg, then you've got to learn how to use Bloomberg."

HARRY WINSTON: It's All About Glamour

Marilyn Monroe didn't shout out, "Talk to me, Harry Winston!" in the middle of "Diamonds Are a Girl's Best Friend" for nothing.

Harry Winston jewelers, whose founder and namesake died in 1978, has been providing glamorous diamonds to the superwealthy and ultrafamous since 1932. Winston personally cut the diamond that Richard Burton gave Elizabeth Taylor in 1969, and Winston once owned the Hope Diamond, which he donated to the Smithsonian Institution.

Other luxury-brand retailers such as Tiffany & Company and Neiman Marcus have found a way to sell online and maintain their upscale mystique.

But at HarryWinston.com, you will find no online store—and you can't even window shop. The Web site, which looks like it's stuck back in 1995, seems designed purely to explain how glamorous it is to be a Harry Winston customer.

The Net is mostly irrelevant to the jeweler's customer base, says Jim Haag, global marketing director for Harry Winston. "We get probably one call a month asking if we have a Web site," he says. "I was in the initial conversations about whether we should start selling on the Web, but I just couldn't imagine buying something that cost $10,000 over the Internet. Everyone told me I was in my 40s and I needed to get with it, but I just don't think people change who they are."

Ekaterina Walsh, a senior analyst at Forrester Research who recently finished a report on luxury online retailing, couldn't disagree more.

"If that's their strategy, then it's a bad strategy," she says. "There is demand among Harry Winston's prime customers. These are people who are very pressed for time. Online luxury buyers are people on a mission: They want to get in and get out. Nobody wakes up and says, 'I'm going to go and have a great branding experience.' "

Or do they, in at least a subconscious way? Haag says Harry Winston customers don't just want service, they require it. "We understand the lifestyles of our clients and we'll meet them on those terms," he says. "These are hard-working people from the financial community, the media community. If they're in L.A. and have forgotten a gift, we'll hand-deliver the gift. If there's an earring problem in Miami, we'll go pick it up from them personally."

Kayte VanScoy is a Manhattan-based business writer. She interviewed Sam Donaldson and CNBC's Pamela Thomas-Graham for the August issue of Ziff Davis Smart Business.

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Ziff Davis Smart Business.