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Shoppers swamp e-retailers
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December 9, 1998: 12:23 a.m. ET
In the first big season for online commerce, providers having trouble
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SAN FRANCISCO (The Red Herring) - Web retail sites are collapsing under the weight of an online shopping stampede, and may bring customer-acquisition opportunities down with them.
In the past few days, major online sellers such as buy.com, Toys R Us (TOY), and eBay (EBAY) have had to close their virtual doors temporarily as heavy shopping traffic downed their sites. Victoria's Secret also delayed the pre-holiday launch of its e-commerce site, due to fears that servers would not be able to cope with heavy traffic.
Opportunity knocks once
While the crashes will lead to a decrease in anticipated holiday revenues for affected Web retailers, analysts say a more serious concern is lost opportunities to acquire new customers and build shoppers' loyalty.
According to Jupiter analyst Ken Cassar, about 17 million people will come onto the Internet for the first time this holiday season. "This is a very important customer acquisition period," he says. "If potential customers are having problems accessing Web sites, there is a tremendous risk of alienating them."
Forrester analyst Maria La Tour Kadison says that major online brands are using email reminders and promotional activities to keep consumers coming back to the Web for post-holiday purchases. And the recent slew of television ads promoting e-commerce sites demonstrates that Web retailers hope to use the spending season to attract new customers to their virtual stores.
While Cassar does not expect the Web crashes to affect online shopping overall, he says if mainstream customers visit sites that are not working, they will be driven to the competition with the click of a mouse.
Too much, too soon
New consumer electronics site 800.com, which launched just prior to the spending season, has been experiencing server problems since last Friday. The Web site is now up and running, but did momentarily slam its virtual doors on hundreds of potential new customers.
Founder and CEO Greg Drew blames a too-successful promotion for 800.com music and video sales for the excess traffic. The company has added a higher-capacity Internet pipeline and several new computer servers.
He says the unexpected traffic was a mixed blessing, demonstrating demand for the site's products, but causing headaches for its technology teams. "You know how it goes," he says. "You have to be careful what you wish for."
Cassar says the lesson for online merchants is to make prediction about holiday shopping traffic and prepare for four times that number of customers.
"I wouldn't say this will ruin things for 800.com, but it could have a very serious effect on customer acquisition," Cassar says.
eBay's stock fell 10 points on Monday after an attempted upgrade of the software used to manage the data storage system brought the online auctioneer's site down for early morning shoppers. Online auctions were postponed up to 18 hours as engineers worked on the problem.
Bricks and mortar hold up
The Toys R Us commerce site also collapsed last week, although its stock price was unaffected.
Cassar says big bricks-and-mortar stores would not be as affected by site crashes as new e-commerce plays, because they already have a solid reputation in the public's mind. "People may be willing to give Toys R Us a second chance," he says, "whereas people trying eBay for the first time will just go to another site, and forget eBay."
While missed sales due to Web site crashes are not as serious as the missed opportunity to acquire new customers, the lost revenue cannot be discounted.
Jupiter has estimated online holiday spending will jump to $2.3 billion, up from $1 billion last year, and Forrester Research expects it to reach $3.5 billion.
Cassar says that in traditional as well as online retail, the year's profit is made in the fourth quarter. "Generally you have 35 to 40 days in the year to make your profit, and in the Internet that time is even more important.
"Every day you lose is absolutely crucial."
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