The end of the 20th century may be remembered as the time the e-dinosaurs turned and faced their enemies head-on. That sound we're hearing this week from the master of direct sales, Amway Corp., may resemble a death rattle, but it could just as well turn out to be the rattle of a new Internet baby, a business model like none we've seen before.
The Quixtar.com shopping club that Amway founders launched last night attempts to move the company's famous multilayered compensation system to an electronic shopping mall, complete with "Q" credit points and a rewards-redemption center.
Amway, for years short on chic allure, has high-class company in its bold bet to shift much of its $6 billion-a-year household-goods business into electronic commerce.
So far this year, Merrill Lynch has made a stunning about-face, bypassing its large sales force of commissioned agents and plunging into direct online transactions. Similarly, the recording industry, terrified of the Internet's free music wildfire, frantically threw buckets of water in all directions before putting a few of its own musical flames online. And just two weeks ago, the president of Toys R Us Inc. walked off the job after his company's online sales initiative appeared stalled.
Exactly how is the Internet cornering Amway? The way it has cornered many large manufacturers that have costly sales forces--by offering a cheaper, more direct route to reach consumers. In the real world, the Michigan-based Amway sells through more than a million "independent business owners" who are encouraged to sign up other distributors and earn commissions based on the sales that those people rack up.
Amway, which was already squeezed by an 18 percent sales tumble last year, due mainly to the Asian financial crisis, decided in December to try to salvage its direct sales force by taking online as many as were willing to go. To do that, its founders created an independent company, Quixtar, and hired IBM Corp., Microsoft Corp. and Fry Multimedia to build an elaborate e-commerce system.
The system hooks Amway's 10 manufacturing and distribution centers directly to a virtual mall at Quixtar.com; it also creates an electronic version of Amway's compensation system with a couple of new layers. The sales agents still get commission checks based on the purchasing volume of everyone they refer to the virtual mall. In addition, Quixtar will register a new class of "members" who don't want to sell to other people but can earn "Q" credits based on how much they buy.
Amway also reached out beyond its own product lines to let other merchants sell to Quixtar members through links from Quixtar.com to outside Web sites. The partner stores have committed to tracking Quixtar member identification numbers and giving Quixtar rebates sizable enough to fund its "Q" credits reward system.
The first inkling I had that Quixtar might be a major e-commerce gambit came when an unprecedented volume of messages flooded my e-mail box after I wrote about the plan in March. Many came from people who had never been involved in Amway but saw the Web mall as an "exciting opportunity" to get in on the e-commerce craze.
The second clue came when my neighbor, a Takoma Park physician, left me a voice mail trying to sign me up for her "line" at Quixtar. "I've only been in practice two years, and my overhead is tight. This is a way for me to supplement my income," said Carolyn Hammett, 37, an internist with a private practice and a Web site at homevisits.com. "It's the wave of the future."
People such as Hammett are precisely the kind of younger, technologically savvy professionals Amway executives hope Quixtar will attract.
But from a purely economic viewpoint, the Quixtar rewards system seems downright silly. Who needs passwords, "Q" credits, "performance bonus" points and all that razzmatazz? Why not just give everyone a uniform price discount and be done with it? That is what the Net is famous for--relentless efficiency.
The problem for Amway is that it has never advertised. It has used the savings to fund a sales force that gets people to buy products using personal contact. Now it faces the challenge of selling little-known products such as its SA8 detergent on the cold and impersonal Internet.
Quixtar executives say their sales agents will continue one-on-one marketing offline to keep up the personal touch. And the site features an elaborate electronic incentive system to motivate them. For example: a "virtual office" area with a "my Quixtar" page where the sales force can see a tally of how much money they're making from family and friends.
And the new Web mall has health information from Johns Hopkins's InteliHealth.com and news feeds from Reuters that members can add to their personalized home pages. The massive site, with more than 15,000 pages at launch, offers calculators such as a "virtual tabletop" to mix and match silverware and bowls and a "laundry assessment" that helps consumers analyze household water quality, then recommends products.
Utilitarian Netheads may groan--and in fact the site was inaccessible for much of last night due to technical glitches--but Quixtar execs say the touches are necessary to create a sense of community and to bring Amway's trademark salesmanship online. "We feel so strongly that high-touch element is missing from the Web today," said John Parker, Quixtar's business manager. "Technology will become a commodity. For marketing to be successful, ultimately it will require high touch--the human element."
The buzz from Quixtar suggests Amway is having early success in transferring its psychological hook--the lure of easy money--online. Just type "Quixtar" into Yahoo's search box and you'll see thousands of promotional pages with addresses such as income4idiots.com and grabthebrassring.com.
In the end, I can't shake this feeling of doom for the real-world Amway business. I have this fuzzy vision of that Amway dinosaur morphing into a pack of lemmings, those rodents that join mass migrations and drown trying to cross bodies of water. But as irrational as the online system may seem, it may succeed if for no other reason than its members want it to so badly.
Leslie Walker's e-mail address is email@example.com.