An E-Commerce Status Report

April 1, 1999
We're well into 1999, and the number of equipment rental centers offering customers the option to order and pay for equipment via the Internet's World

We're well into 1999, and the number of equipment rental centers offering customers the option to order and pay for equipment via the Internet's World Wide Web is exactly the same as it was in 1959. In other words, zero.

Many technologically driven rental centers have taken initial steps toward interactive electronic commerce. Realistically, however, the day when a contractor can log on to a rental center Web site at 10 p.m. and, with a few keystrokes, guarantee that a piece of equipment will be on the jobsite the next morning is several years away.

Most rental center sites today don't post rental rates; countless others don't even offer a way to contact staff without picking up a phone.

Could this industrywide hesitancy about electronic commerce be a blessing? It certainly affords equipment rental firms the opportunity to learn from successes and failures of trailblazing companies in more advanced industries.

Some of the benefits include:

* Cost-cutting. Paperless transactions provide substantial savings and, in most cases, involve less potential for error in filling orders. A quality site can also allow customers to confirm and track the progress of their orders themselves. The Wall Street Journal estimates that online sales can slash costs as much as 15 percent versus traditional sales channels.

* Inventory control. Continuous replenishment software - which recognizes when inventory of certain items is low and automatically places an order - allows companies to focus resources on serving their customers rather than interacting with their vendors.

* Locking in customers. By storing customer likes and dislikes and customizing online sales pitches, businesses can offer value-added personalized service that keeps customers from taking their money down the cyber-street to a competitor.

* Price discrimination. Computer experts, including Microsoft's Bill Gates, predict that Web sites will soon be able to identify individual consumers, where they have been on the Web and, most important, recall the price they paid for an item in the past. Such data would allow Web sites to recognize whether the customer has been getting a better price from the competition. If the site determines that the visitor is a price-sensitive shopper, it can instantaneously offer a special discount that keeps the business for your company.

Despite those advantages, several high-profile companies with groundbreaking e-commerce sites have been burned by the downside of the Internet revolution, whose pitfalls include:

* Shrinking margins. Car dealerships in particular have been especially troubled by automaker sites that offer the potential to deal direct with customers, thereby cutting out the dealer (and its traditional margins, which can be as high 15 percent above cost).

* Sales department revolts. Many salespeople increasingly view the Internet as a threat to their livelihoods. Some companies have attempted to minimize the bad feelings by giving salespeople a cut of Internet sales in their territories, regardless of how involved they were in the deal. While such a strategy keeps salespeople happy, it also can wipe out any cost savings.

* Shopping around. Customers, who perhaps found the time and effort of price shopping via telephone too daunting, can more easily make point-and-click comparisons using Web sites. Several new sites have emerged recently for the sole purpose of helping online shoppers compare prices. Not only has this put downward pressure on prices of goods and services sold on the Internet, but it means e-commerce companies have to work even harder to differentiate themselves from competitors on a value basis.

* Fulfillment expenses. Web merchants - some of whom are used to shipping fewer, larger orders to dealer/distributors - have had to gear up to ship more small orders directly to their customers. This can mean heavy capital expenditures. For example, book and music retailer Borders, in an attempt to compete with e-commerce giant, has built a separate distribution center (cost: $15 million) simply to handle online orders.

Despite the drawbacks, experts argue that e-commerce is a phenomenon of increasing returns. As an online leader expands its Internet offerings, they say further growth becomes easier, not harder. If true, the theory of increasing returns underscores the importance of rental companies to invest time and effort now to expand their Web offerings. Those that are first in their trade area to offer Web services are the ones most likely to attract and keep online customers.

For now, though, even the front-runners in the race to rental equipment e-commerce are a long way from the homestretch.