Business

DARREN ABRECHT: Moving merchandise like media

There is something about shopping online that makes obtaining physical things feel a lot like obtaining information: click, click, get this weekend's weather report; click, click, get a pair of sunglasses. With just a few more clicks, you can compare prices on the same item at different stores, see the rest of the manufacturer's product line, or view similar items from other manufacturers.

This way of shopping is tremendously liberating, a point that was driven home for me one day when I was standing in front of the wall of small kitchen items at Target, shopping for a basting brush. I realized suddenly that all of the products were sorted by manufacturer, meaning that if I wanted to compare basting brushes, I had to search up and down the entire wall. I wanted to click the top of a column and change the sorting options on my search results.

With the exception of a few items that truly need to be seen in the flesh, I would gladly buy everything online. The only thing that prevents me - and, I suspect, many others - from taking that leap is the high cost of shipping. The lower sticker prices that can often be found online are offset by the price of getting it to your door, especially in the case of anything larger than a bread basket.

This is the point at which the physicality of the thing you're trying to "download" comes back into sharp focus. You can pay more to get it there faster, or pay less if you're willing to wait, but you will have to pay to get it there. While different studies give different figures for the percentage of virtual shopping carts abandoned over "shipping shock," all of the numbers are big ones. Finding a way to reduce the cost of shipping is a major challenge for the online retail industry.

Of course, moving data around isn't free, either, despite appearances. Not only does the user have to pay for access, publishers also have to pay for the bandwidth their visitors use. But getting information online "feels free" in a way that getting objects shipped to your door doesn't.

A recent story from Wired News presents an opportunity to think about these two very different species of deliverables in similar terms. Google and the Space Telescope Science Institute were trying to move a 120-terabyte repository of data from the Institute's servers to its new home on Google's. As anyone who has ever had a too-large e-mail attachment dropped en route could tell you, the Internet is woefully suited for data transfer on that magnitude.

Google's solution, christened "FedExNet," was to ship an array of empty hard drives to the scientists, who shipped them back full. Commentators on various Internet community sites were quick to dig up a quote, attributed to computer scientist Andrew Tanenbaum: "Never underestimate the bandwidth of a station wagon full of tapes hurtling down the highway."

All this serves to remind us that it was only very recently that the commercial distribution of data came to be separable in principle from the movement of discrete physical objects. Newsprint, strips of magnetic tape, and plastic platters are still with us, but their importance is steadily diminishing. Not so long ago, they were the only game in town.

The story serves to remind us, too, that the Internet, revolutionary though it may be, is just the latest in a series of vascular networks built to faciliate communication and commerce between far-flung groups of people. Each of these networks - the highway system, the telephone lines, the railways, to name a few - has its own unique characteristics. Nonetheless, they share certain essential similarities that present opportunities to think about them in similar terms, such that it becomes meaningful to discuss the bandwidth of a station wagon.

Given these similarities, is there anything that can be learned from the business models of content distributors that could make moving boxes down the highway "feel free" for the end-user? This may seem an odd question to ask, given that web content has been notoriously difficult to monetize. But to the extent that it has generated revenue, it has done so by adapting techniques from older, more established content distribution models. These techniques have already proven their worth at paying for shipping, because they date from the plastic-and-paper era, when consumer-sized portions of content had to be shipped, just like Google's hard drives or that set of cutlery you just ordered.

The first and most obvious of these techniques is bundled advertising. How much would a manufacturer pay for you to find their insert as you open your package and remember that, in addition to the new sweater, you will also need a pair of mittens? Most large retailers already keep extensive data on what items are likely to be purchased together, so enabling targeted advertising of this sort would require very little additional investment. The ads could be used to subsidize shipping, perhaps allowing a broader range of items to be shipped free-of-charge.

A second technique, the subscription model, is already being tested in a new program at Amazon. The service, called Amazon Prime, takes a cue from the free-content illusion associated with a home internet subscription. Internet content feels free because you pay the same, easily-forgotten price whether you download 100 gigabytes or 5. Amazon Prime translates this logic to the highway. Sign up for the service, and you pay $79 for a year of free, two-day shipping on all purchases, with a few exceptions.

Amazon has a history of pioneering innovative methods for dealing with the high cost of shipping. They were among the first to offer free shipping on certain items or purchases above a certain price threshhold, now standard industry practices. Although some experimentation will be necessary to find the proper price-point for a service such as this, I predict that applying the subscription model to shipping will pay off both for Amazon and for other online retailers who follow in its footsteps.

Related stories from San Luis Obispo Tribune

  Comments