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    Leslie Walker

    Off-Line Retailers Gird for War

    By Leslie Walker
    Washington Post Staff Writer
    Thursday, December 31, 1998; Page E1

    You might think of 1998 as the proof-of-concept year for electronic commerce, with cyber-Pied Pipers proving they could lure millions of shoppers online. But what sounded like music to consumers was a call to arms for businesses, making it likely 1999 will see commerce wars erupt on the World Wide Web.

    As the global computer network matures into a more stable medium for buying and selling, big real-world companies are getting worried about it. In the coming year we're sure to see some of them ditch long-standing business partners and ally with new ones in a bid to protect their bottom lines.

    It's become plain as day that the Internet is upending rules that companies have played by for most of this century. By lowering communication costs, the Net shrinks distances and fundamentally alters the way information – and ultimately goods and services – can be distributed. These changes are roiling players at every level of the distribution chain, from manufacturers and distributors to retailers and consumers.

    The Net creates cheaper channels for companies to reach retailers and consumers. It lets manufacturers bypass entrenched middlemen such as distributors, resellers or real estate agents; they can even bypass retailers if they are willing to sell online themselves.

    Even as it threatens to kill off the old intermediaries, the Net is creating a new breed of cyber-middlemen who are inventing creative ways to link buyers and sellers.

    Lately, most of the attention is going to traditional manufacturers and retailers struggling to find their place on the Net.

    Barnes & Noble fired a new broadside against rival this month when it announced it would buy the nation's largest book distributor, Ingram Book Group, which is Amazon's key supplier.

    Estee Lauder shook up retailers everywhere by opening a direct Web outlet for its Clinique cosmetics last month. And Levi Strauss began selling custom-fit jeans on its Web site – and forbade retailers to offer the same jeans on theirs.

    Other manufacturers are hanging back, afraid of alienating distributors or retailers to tap a sales channel that barely claims 1 percent of retail transactions. But you can count on many of them losing that reluctance as Internet start-ups begin stealing customers.

    So who are the newcomers that have traditional companies worried?

    In the ever-expanding cast of clones, there are many clever retailers. One is, which launched under the radar of American Greetings and Hallmark this month to sell personalized greeting cards. Another is, which aims to be a kind of Filenes Basement of cyberspace by collecting discount designer fashions.

    Even more intriguing are Web middlemen who collect information and services, rather than goods. Here's a sampling of ones worth watching in 1999:

  • Priceline. This company reverses the traditional selling dynamic by allowing consumers to name the price they're willing to pay and then shopping the bids to sellers. So far, Priceline has implemented its unusual pricing system for airplane tickets, hotel rooms, mortgages and cars.

  • GoodNoise. One of many bit players taking aim at the recording industry's lock on music distribution, GoodNoise wants to create a central Web location for music using a file-compression technique called MP3. Don't be surprised to see the record industry's unhappiness over MP3 erupt into full-scale panic.

  • OpenSite. While runs a popular consumer-to-consumer auction, hundreds of businesses started online auctions this year to sell surplus goods to consumers. Many use software from OpenSite Technologies. OpenSite is planning an auction hub at to cross-link the 200 auctions that run on its software so anyone can search them simultaneously. This likely will be one of many attempts to centralize the rapidly growing world of specialty auctions.

  • InsWeb Corp. is one of many sites offering one-stop comparison shopping for insurance. Financial services of all types are ripe to move online because they have few physical goods and plenty of paperwork that is readily automated.

  • E-Loan and HomeShark. Mortgages are another financial service primed for a shake-up similar to the one that occurred as stock brokerages rushed online. These two Web loan brokers are battling against QuickenMortgage, Intuit's online arm.

  • VerticalNet. A business-to-business company, VerticalNet Inc. could rattle owners of trade shows and trade publications. It is creating a collection of Web sites in specific industries (29 so far) to serve as all-in-one combinations of virtual trade magazines, exhibition halls and industry associations.

  • Monster Board. Monster Board is one of several Web recruitment centers that reached critical mass this year, threatening headhunters the classified ads of the nation's newspapers. Anticipating the threat, newspapers banded together several years ago to offer their job listings at This year, a similar newspaper consortium launched other classifieds sites through

    Internet-only companies likely will continue leading the way in electronic commerce, becoming takeover targets for bigger traditional companies. Expect a gradual blurring of the distinction between online and off-line players as the Net goes mainstream.

    As an example of hybrids to come, look for Internet access terminals to pop up in regular stores, helping shoppers find exactly what they want at the traditional point of sale.

    Leslie Walker's e-mail address is

    © Copyright 1998 The Washington Post Company

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