DECODING THE CUSTOMER
By Mel Duvall
Electronic eyes are all along the highways and byways of the Internet. They're monitoring your e-mail, studying your surfing habits, deciphering how you work and building detailed profiles of where you shop and what you like to buy. Alarmed? This form of e-surveillance is viewed as an essential weapon for any company doing battle on the Internet. In fact, success and failure could very well be determined by which corporations best monitor the online activities of their customers and business partners and use that intelligence to fundamentally change the way they do business.
"We're in the middle of a business revolution that is rewriting the way companies interact with their customers and how they learn from their customers," said Dale Kutnick, president of research firm Meta Group.
"The mistake here would be to think it's all about technology. You can spend tons of money deploying customer relationship management systems or data mining tools, but at the end of the day someone has to make a decision on what is the value of that information," he said. "The winners are going to be the companies that can make that link and exploit it early."
Companies involved in computer hardware, software, telecommunications and the Internet have been among the first to seize the opportunity, but e-business intelligence is quickly becoming a boardroom buzzword in almost every industry.
Pharmaceutical companies such as Eli Lilly use it to learn more about people searching the Web for information on Prozac. Major Hollywood studios such as Paramount Pictures use it to find out whose star is on the rise and whose glow is fading. Industrial manufacturers such as Milacron (http://www.milacron.com) use sophisticated data mining tools to find out what thousands of machine shops across the country are buying, what they appear to be interested in buying and what they might need next.
The bottom line for those companies? Happier customers, invaluable insights into new products or services and bigger profits.
Take a look at National Semiconductor, a chip company whose very survival may rest on its ability to find uses for products that don't command the premiums Intel earns from microprocessors.
Last year, the company knew something was up when Web site downloads of the specifications for a new sensor product suddenly jumped tenfold, from hundreds per day to thousands per day. It was the first hint that a single product, which had plodded along with sales of less than $20 million per year, was about to explode into a wide product line.
The $1.2 billion Santa Clara, Calif.-based chip maker (http://www.national.com) had hoped that the rise of Pentium-powered laptops might cause increased sales of chips that monitor and regulate heat, but they had no inkling that heat was about to be such a hot topic.
National had a data mining system in place to monitor where visitors were browsing and pick out unusual trends. It also had the advantage that its prime customers -- engineers of electronic devices -- do all of their primary research on the Web.
"In the past, marketing managers always had a feeling about what was happening, but they didn't have the data to back it up," said Phil Gibson, director of interactive marketing. "Now we get quantifiable insights into such things as which products are on the fade, which chips are being designed into products and which products may be on the rise."
In the case of the sensor chips, National was able to jump on the insight it gained from its Web operations to boost production and marketing. The result was a product line with sales booming past $100 million inside of a year.
Now, Gibson delivers daily graphical snapshots of Web activity to managers of each of the company's product lines so they can spot trends immediately. "It's very much like tracking a product's daily blood pressure," he said.
Such links between customer input and factory output seem to be growing as fast as the Internet itself. At one end of the spectrum are data mining and analysis tools -- sophisticated software engines that closely monitor activities on corporate Web sites. They figure out where visitors have come from and where they're going once they leave, check out where people browse and how long they stay in each section, build personal profiles based on browsing and purchasing patterns and alert administrators to unusual activities or sudden spikes in demand.
Leaders in this field include Accrue (http://www.accrue.com), a Sunnyvale, Calif.-based company with clients such as DreamWorks, NationsBank and the San Jose Mercury News; net.Genesis (http://www.netgenesis.com), with such customers as Aetna, Barclays, Paramount Pictures and Pfizer; and WebTrends (http://www.webtrends.com), with Chrysler, McDonnell Douglas and Wal-Mart among its clients.
On another level is a new breed of customer relationship management (CRM) system, which not only helps corporations answer customer inquiries and solve problems faster, but also collects extensive data about those customers so it can be turned into business intelligence. Leaders in this field include Clarify, Siebel Systems and Vantive.
Monitoring E-Mail
And where would the Internet be without e-mail? A small but fast-growing group of companies is developing software that can provide automatic responses to e-mail inquiries as well as compiled reports on such vital statistics as the nature of the questions being asked, where they're coming from and, most important, whether that inquiry can be turned into a sales lead.
Together they are developing into multibillion-dollar businesses. Meta Group estimates that demand for Internet-based CRM systems will grow from $1.5 billion in 1998 to $4.7 billion by 2001. Sales of Web site analysis and data mining software are expected to climb from $29 million in 1998 to $132 million by 2002, according to International Data Corp., and The Yankee Group forecasts that the e-mail customer service market, which is still in its infancy, will reach $310.4 million by 2001.
"Right now, most companies view customer e-mail as a necessary expense," said Chris Noble, vice president of marketing at Kana Communications, in Palo Alto, Calif., a front-runner in the field. "What they need to do is start thinking about how they can turn their customer e-mail into an asset."
That is exactly what Web portal company Excite has managed to do. Excite (http://www.excite.com) uses Kana's Customer Messaging System software to help it respond to the thousands of customer e-mail messages it receives each day. The software scans the text to determine the nature of the inquiry and suggests appropriate action. It also can identify a sales lead and pass the message to a sales representative.
Rob Garduno, Excite product support manager, said the company was facing a particularly taxing situation in its Auctions and Classifieds department. The number of e-mail messages flowing into the department hit an average of 750 per day in July 1998 and showed no signs of letting up. In fact, today the average is roughly 1,800.
"With the number of e-mails coming in, it was impossible to get a true sense of what people were asking or identify a trend on any given day," he said. "You might get half-a-dozen different answers depending on which customer service representative you asked."
Excite installed Kana's software and began dissecting the trends. It discovered a disproportionate number of e-mail messages asking whether Excite had a collectibles category. Excite did have a collectibles listing, but it was buried a couple of layers down.
"With the interest in Beanie Babies and the like, there was obviously a pent-up demand that we weren't servicing that well," he said.
Excite created a stand-alone collectibles category and boosted its profile on the main classified page. "It was an instant success," Garduno said. "Our listings grew threefold almost overnight. Our advertising revenues are based on the number of listings we have, so it had a direct effect on our bottom line."
Human Intervention
As Meta Group's Kutnick said, technology isn't always the answer to achieving e-business intelligence. Sometimes it takes common sense and human intervention.
Extranet Solutions (http://www.extranetsolutions.com) in Chicago specializes in developing online business communities and adding services. Its clients include Ace Hardware, Arthur Andersen and CourtTV.
Ace turned to Extranet Solutions to create an online network for its industrial dealers, a group of about 200 Ace retailers that cater to property managers, schools, local governments and manufacturers. Tina Lopotko, manager of Ace's commercial industrial division, said there wasn't a lot of communication going on between the dealers and head office or between the dealers themselves.
Extranet Solutions now maintains the network and keeps tabs on topics discussed in message boards. If a dealer complains about poor service or shoddy products, it lets Lopotko know immediately. In fall 1998, dealers voiced concerns online about delays in shipping, a problem that might have gone unnoticed for a long time. Extranet Solutions notified the head office, and Ace was able to take action.
"We were able to let them know immediately that we were addressing the problem internally. It still took a few days to solve the problem, but it's little things like that that can make a huge difference," Lopotko said.
Frank Gens, senior vice president of Internet research at IDC (http://www.idc.com), said the simple message for any company doing business on the Web today is that ".com" doesn't cut it anymore.
"It's not enough to just show up for the party," Gens said. "Companies have to be prepared to understand who their online customers are and be ready to adapt in Internet time.
"In the words of the great philosopher Wayne Gretzky, don't go to where the puck is," Gens said, "go to where it will be."
The Bottom Line
Companies' futures could well depend on how well they know their customers. Electronic surveillance enables competitors to spot trends and react rapidly to meet demand.