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    Amway Discovers the Web

    By Leslie Walker
    Washington Post Staff Writer
    Thursday, March 25, 1999; Page E1

    You had to wonder when Amway would show up. The famous maker of soaps and vitamins is a master at bypassing the stores of Main Street, after all, and what is the Internet if not a direct-marketing paradise?

    It's been fun watching the Amazon.coms do in cyberspace what Amway did on the ground 40 years ago. And all the big e-tailers have thousands of affiliated Web sites linked to their virtual stores, with each affiliate collecting commissions if a referral results in a sale.

    Sounds like what Amway's always done in American living rooms, doesn't it?

    Now the king of multilevel marketing will try its hand in cyberspace. It announced this month that it's hired Microsoft Corp., the king of software, and International Business Machines Corp., a leader in electronic-commerce technology, to move part of its

    $6 billion-a-year business online, with a Sept. 1 launch date.

    The company will attempt to re-create its tiered compensation plan in a virtual mall where shoppers will earn price discounts and rebates based on the volume of sales that they, their friends and their friends' friends generate.

    Members will be assigned a unique number that the Web site will use to calculate their discounts and earnings. The discount will grow with the purchasing volumes of the tiers of customer/distributors that each person recruits. Amway will display the running tally in a private area only members can see.

    Designing such a mall will not be easy, especially since Amway plans to sell products of other companies as well as its own. The development team is busy trying to negotiate volume discounts and special offers from big-name merchants in an effort to create a virtual Mall of America.

    The plan is to link to stores elsewhere on the Web, yet have a unified "checkout." As if that weren't enough of a technical challenge, Amway also plans to offer free e-mail, news headlines and other Yahoo-like services.

    After finally getting Internet religion, Amway dispatched its traditional network of "diamond distributors" and "double diamond distributors" to the Holiday Inns of America this month to tell the old faithful and the new recruits how the Internet mall can make them rich.

    "On a monthly basis, would $15,000 change anything in your life at all?" distributor Steve Gulick asked 200 people crowded into a hotel conference room in Fairfax County on Monday night. As the wave of wondrous laughter died down, he added, "What we've got here, guys, is an explosive business idea."

    Gulick said people who sign up could expect to be earning $2,138 a month within four months, provided the following proved true: They personally spend $200 a month at the mall and recruit six friends to join, and each of these friends recruits four more, who recruit another two -- for a total of 78 people in the person's "line," all of them spending $200 a month at the mall.

    And each of these recruiters would pay $150 upfront to join.

    Amway is calling this idea Quixtar, pronounced "quick star." It is the name of a company, a Web site and a business plan. Company officials say more than 200,000 people already have signed up to learn more about it at the teaser Web site

    Although announced as an Amway Corp. operation a few weeks ago, Amway officials now say Quixtar will be a separate company. Amway will continue running its global distribution system in parallel and become the subcontractor handling product distribution and billing for Quixtar.

    Existing Amway distributors and new ones who join Quixtar may have to make a choice: Go online or stay in the old distribution system and miss what Amway supporters say has become Internet "fever." Officials at Amway headquarters in Michigan are still trying to figure out whether they'll let people play it both ways.

    Gulick told the crowd Monday that Amway co-founders Rich DeVos and Jay VanAndel have put up $25 million to start Quixtar. Gulick and other Amway distributors seem excited about Quixtar, which they found out about only last month, at a sales convention in Hawaii.

    John Parker, Quixtar's director of business development, said Amway had been planning its Web strategy since early last year. My suspicion is that Amway's founders spent much of the year arguing over how to keep their direct-sales empire healthy in the face of the Internet shopping juggernaut. With a global sales force of over 1 million people, Amway has to be worried about a sales channel that bypasses humans with a proverbial click of the mouse.

    Its business is built on reducing distribution and advertising costs by having members do the work, then distributing some of the savings through commissions. Members not only earn commissions for each item they sell, they also earn commissions for items sold by their recruits.

    But the question for Amway becomes, can it survive in an online world that flattens traditional hierarchies by distributing information and goods so cheaply? Or will Amway's tiered compensation system get squished, too ("Amazoned," as they say), along with many traditional businesses? The network affiliate model that's worked on the Web so far typically involves just one level, not a multiple tiers.

    The personal touch has always been key to Amway -- friends talking to friends in living rooms and around office water coolers. What happens to those faces and living rooms in the faceless, spaceless Internet?

    Amway maintains that the living room contact will continue, helping deliver a network of believers to the new Internet mall. "It will be a blend of high tech and high touch," Parker said.

    But in cyberspace you've got to wonder how much weight the Amway model will carry. Electronic shoppers want speed, convenience and minimal human contact, not coffee first at a neighbor's living room. Then again, the prospect of that $2,138 a month could draw in enough people to give Quixtar a splashy trial.

    © Copyright 1999 The Washington Post Company

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