Digital Commerce
How much government regulation is needed?
By Adriel Bettelheim

Once known mainly for chat rooms, e-mail and pornography, the Internet is rapidly being transformed into a powerful commercial selling tool. U.S. business transactions on the World Wide Web totaled $43 billion in 1998 and could rise to $1.3 trillion by 2003. Companies increasingly go online to order parts, schedule shipments and obtain business services. Consumers are clicking on Web sites that sell. . . .

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Should Congress permanently ban new state and local taxes on Internecommerce?

Adam Thierer Walker Fellow in Economic Policy, The Heritage Foundation . From “Spare Internet From Taxation?” The Washington Times, July 11, 1997. Reprinted with permission.	C. Scheppach Executive Director National Governors' Association. From testimony before Senate Finance Committee, July 16, 1998.

The Art of the Personalized Pitch

Customers of the Internet music retailer CDNow get more than a screenful of new album releases when they click on its Web site. The popular service also offers them a personalized “Wish List” of recommended purchases based on their stated preferences, past buys and ratings on artists and CDs. The company says the feature essentially creates an individualized music store for each of its 600,000 customers.

Other cyberspace ventures, including bookseller Amazon.com and the Web portal Excite Inc., also use one-on-one pitches to boost sales. At a time when regulators and lawmakers view the Internet as a mass medium, digital marketers increasingly are personalizing it by targeting ads and features at individual users. In the process, they are challenging the decades-old notion that mass marketing is the most effective way to reach consumers.

“I don't think it will mean the death of advertising because ads are too entrenched in our culture,” says senior analyst James McQuivey of Forrester Research in Cambridge, Mass. “But you could see selling becoming more specialized. Automakers are excited about using the Internet to show customers individual models and let them try out different options. They'll be able to suggest that drivers in regions with icy or wet weather consider anti-lock brakes.”

When Jupiter Communications surveyed 25 top online merchants last year, the New York market researcher found 40 percent already were offering personalized features, and 93 percent intended to have some form of personalization on their Web sites by the end of 1999. Experts say that while aggressive pricing is perhaps the single, biggest factor involved in getting people to make their first online purchases, customized services keep them coming back and allow retailers to develop loyal followings.

McQuivey credits Amazon.com with perfecting the personalized pitch by establishing a popular feature that recommends book titles as potential purchases based on users' interests. The feature is built around a technology called “collaborative filtering,” which uses mathematical formulas to predict what customers will buy based on previous purchases, stated preferences and the preferences of other people who bought the same title.

Dell Computer Corp., one of the most successful high-tech online retailers, has used personalization to create more than 1,500 customized home pages for its most loyal customers so that they have fast access to special sales and billing information.

American Airlines' Frequent-Flyer program creates personal profiles of members to accelerate online booking. The profiles contain members' home airports, frequently flown routes and seating and meal preferences. And Kmart recently introduced www.thatperfectgift.com to encourage holiday shoppers to build a Christmas gift list and help them select appropriate items.

The personalization extends beyond individual sites to the Internet portals that serve as gateways to the online shopping bazaar. The portals use software to match a user's stated interest with selected advertising. For example, someone who uses a portal to access a site about Colorado vacations may be presented with a banner ad for skis. Excite, Yahoo! and other portals also offer personalized services, such as weather reports and horoscopes.

Despite the appeal, not everyone is enamored with personalization. Some users worry about their purchasing profiles getting swapped among online retailers. The concerns have prompted Netscape's and Microsoft's popular browsers to offer features that turn off “cookies,” the data files that track Web surfers' online movements. Other software allows users to list sites from which they will accept cookies. And a San Diego service called The Anonymizer allows people to surf the Web and send e-mail anonymously.

“Ultimately, this will make transactions more efficient, but I still think people will go out shopping for the experience,” says Forrester's McQuivey. “There's nothing like testing out how a leather chair feels, or trying on clothes, in person.”

[1] For background, see Robert Hof, Heather Green and Linda Himelstein, “Now It's Your Web,” Business Week, Oct. 5, 1998, pp. 164-176.

Footnote: 1. For background, see Robert Hof, Heather Green and Linda Himelstein, “Now It's Your Web,” Business Week, Oct. 5, 1998, pp. 164-176.