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Series: Darryl Peck Interview
A revealing chat with the founder of Cyberian Outpost
Article 1 of 2 in series
Welcome to the second and final installment of the Darryl Peck interview. Last week, in TidBITS-320, Darryl, , talked about how he became a Macintosh enthusiast and his experiences in running Inline DesignShow full article
Welcome to the second and final installment of the Darryl Peck interview. Last week, in TidBITS-320, Darryl, <email@example.com>, talked about how he became a Macintosh enthusiast and his experiences in running Inline Design. He also talked about how he became interested in Web-based commerce and founded a Web-based store, called Cyberian Outpost, which sells hardware and software.
- [Adam] You sell both Mac and PC products, but your focus is on the Mac end of things. Two questions. First, can you tell us what percent of your business is Mac-related? Second, given that you're making money from selling Macintosh products, what's your opinion of the Mac market and of Apple right now?
[Darryl] We do a substantial amount of Mac business that adds up to more than half our total business. As for Apple, I guess I just don't get it. When a $12 billion company loses $69 million, it is not time to start playing Taps. I mean, this is a tiny drop in the bucket for Apple, especially since they are sitting on well over $1 billion in cash. If anything, the good thing that came out of this is the replacement of Spindler. My gut tells me that Apple is in much better hands now.
I, for one, do not have any fear whatsoever of Apple going away. The platform is so much better in so many ways, I cannot imagine everyone just up and changing to Wintel. The recently announced Motorola deal will help, but Apple does desperately need to get Copland out the door at any cost. The Mac OS is starting to show its age, and frankly, although I hate to say it, Windows 95 does certain things a whole lot better than System 7.5.x. Please, don't throw eggs at my door...
- [Adam] No matter whose statistics you listen to, the percentage of people online is relatively small compared to the population at large. Are you missing a significant number of customers by existing solely online?
[Darryl] Well, yes and no. Since we are not going to become a mail-order company there is not much point in thinking about it. We feel that there are a few companies that do mail-order real well, and we are not going to go in and beat those guys at their own game. However, in what is may be a retail first, we have done so well online that we recently opened an actual retail store at our new headquarters. So, in fact, we do not exist solely online.
- [Adam] What are the most serious challenges Cyberian Outpost has faced?
[Darryl] Probably trying to deal with lots of "good" problems. In only nine months we have become one of the three largest retail sites on the Internet, and one of the top one hundred computer retailers in the U.S. We have doubled our sales every 90 days since we opened in May. This is a huge amount of growth to handle in a short period of time, and to be honest, it has led to a few problems. At times we were unable to get inventory coming into our warehouse fast enough to meet demand. And, our customer service sometimes fell below our own strict standards. We have taken fast and dramatic steps to catch up with our growth and continue to add staff constantly.
Other than that, I think we have had a pretty smooth nine months. Our partners in Virginia, Symphony Marketing Group, have done an excellent job of keeping our server up and running 24 hours a day. We have the hardware and software in place to handle huge amounts of traffic and so far everything has worked just great.
- [Adam] People can pay for stuff at Cyberian Outpost via credit cards - what's your opinion of the security issues surrounding transmission of credit cards on the Internet? Do you use a secure server?
[Darryl] I'm glad you asked. Yes, we use the secure Netsite server from Netscape. However, we secure only the ordering section of our site, since using security on any page slows it down tremendously. Web browsers cannot cache secure pages, so although we had the entire site secured at the beginning, we realized that was just slowing things down for no reason.
We all know that there has been a huge amount of press about the security concerns regarding net commerce. Frankly, I find this to be more hype than reality. If anyone sat down to compare the amount of credit card fraud generated in, oh, let's say restaurants, to Internet commerce, there would be no comparison. I would bet last year tens of millions of dollars in credit card fraud stemmed from basic restaurant purchases. If even a tiny fraction of credit card fraud came from Internet commerce, I would be surprised. The bottom line is that credit card abuse and fraud is already rampant and is costing business billions of dollars a year.
Another thing to keep in mind is that it is the merchant who is at risk. We do not get paid by the credit card company if we take a bogus or stolen card. That's it. Plain and simple. The person who had their card stolen is not responsible for anything. Yes, the credit card agreement says they can hold you accountable for up to $50 if you do not report your card stolen, but in most cases they will not charge this fee, especially since in this day and age the physical theft of the card is irrelevant to the use of the card.
Having said all this, Cyberian Outpost does verify the billing address on every charge, we have systems in place to notice suspicious activity, and we do not store credit card information on any computer attached to the Internet. We also take orders and payments in more traditional ways, so people who aren't comfortable with transmitting credit card information over the net don't have to.
- [Adam] Those seem like reasonable precautions that any online ordering service should take.
[Darryl] Also, we work very closely with law enforcement officials to track down and prosecute those who engage in credit card fraud. In fact, we recently participated in a sting operation with the state police of New Hampshire and the Canadian Royal Mounted Police. It was all very exciting.
I'm confident that the forthcoming security protocol from the Visa/MasterCard alliance will provide everyone with an ultra-secure way to conduct commerce on the Internet for the long haul.
- [Adam] What about electronic cash - have you investigated different systems like DigiCash and First Virtual? Do you plan to support any of them, and if so, when?
[Darryl] We have looked into most of the e-cash schemes and have chosen to sit on the sidelines for now. Interestingly, we have had fewer than five requests for e-cash payment options. I think there are several problems here. First, it creates a barrier to commerce. Although it is not a great difficulty to download and use a separate piece of software to pay for something, we feel it adds unnecessarily to the process.
Second, there are competing standards and that is never a good thing. We knew all along that Visa and MasterCard would get together and agree on a common standard. I think for e-cash to become useful, a common standard is necessary. Just who will lead the charge here I don't know, but I certainly wouldn't bet against Dan Lynch and the people at CyberCash.
Third, I am not sure I see the use of e-cash for general purchases of hard goods. E-cash gets very interesting when you look at payment for information or micropayments. When you start talking about paying $.02 for a page of a report, or $.10 for a stock quote, it is clear that credit cards are not the way to pay for this. However, when one is purchasing a $50 piece of software, credit cards are the best option. By the way, I should point out that some of the e-cash companies we talked to told us that we would not receive payment from them for a period of 90 days from the transaction date. With credit cards we get paid in 24 hours. So you can see, we were in no rush to mess with e-cash.
- [Adam] What differentiates Cyberian Outpost from ordering from MacConnection, MacWarehouse, or one of the other mail order firms?
[Darryl] I think there are lots of differences in shopping at Cyberian Outpost, but I can't say that there are huge differences in ordering. MacConnection (and some of the other larger mail-order houses) has always done a great job at customer service, and we didn't think we were going to blow them away at their own game. But, we did feel strongly that we could create a much better and more pleasurable shopping experience.
How? Well, the key to us was obvious. Use the technology to its fullest. While we love the fact we do not stuff your mailbox with paper made from dead trees, we knew that being environmentally friendly isn't enough. We needed to provide more information in a more easily accessible way.
For instance, a typical product description will contain the basic details, a brief description, a longer description (sometimes several pages of data, thanks to unlimited electronic real estate), the system requirements, sometimes a review, a screen shot, a box shot, a downloadable demo if one if available, and in many cases, updater and patch files for the particular product.
The main attraction of Cyberian Outpost, and by far our most popular feature, is our New Arrivals page. We have a huge advantage over retailers who don't operate on the Internet in that we can tell you when a new product is released within hours of the release. We can also keep everyone up-to-date on expected ship dates of hot new products. We update this information all day, every day.
The New Arrivals section of our store is so popular that our customers begged us to create an electronic newsletter version of it so that they can get the listing delivered each week (OK, so we haven't been good about getting it out each week. We're working on it...) directly to their mailbox.
In addition, we expect to offer electronic distribution of software as an option soon. So when you need something right away and bandwidth is not a concern, we will work with vendors to provide instant gratification. We believe that the majority of our customers still prefer getting the whole package the next day, but we realize that some want the option of downloading, so we will make it happen soon.
And, of course, our biggest advantage is our ability to do business globally. With a local phone call from most anywhere on the planet, customers can happily browse the aisles of the Outpost for as long as they like. We do a huge amount of business overseas and now have all the ordering and customer service information available in six different languages right on our home page.
Another thing we do differently from many other resellers is that while we now allow vendors to purchase certain spots on our site for low fees, we do not allow a vendor to "buy their way in" to our product selection. If we carry a product it is because we choose to carry it. No one pays us to carry anything. This also enables us to write reviews of the products we carry (which admittedly we are a little behind on. Any volunteers out there, send email to <firstname.lastname@example.org>). An example is when Microsoft Word 6.0 for the Mac was listed in our store. Our brief description read, "The Mac word processing standard. At least until this version came out." So, as you can see, while we have every interest in selling as many copies of Microsoft Word as possible, we are free to be honest about the products we carry.
- [Adam] Thanks for your extensive comments, Darryl, and perhaps we'll check back with you in a year or so and see how online retailing has changed.
Article 2 of 2 in series
Welcome to the second installment of InterviewBITS. This interview is with Darryl Peck whose name is less familiar than that of our previous interviewee, Peter N LewisShow full article
Welcome to the second installment of InterviewBITS. This interview is with Darryl Peck <email@example.com> whose name is less familiar than that of our previous interviewee, Peter N Lewis. Nonetheless, Darryl has been a major participant in the world of the Macintosh for years, and most recently, has expanded his horizons to the Internet. Darryl was president of the New York Mac Users' Group (NYMUG) for a year after being the group's sysop. Darryl then started Inline Software, a small Macintosh publishing firm known for some innovative utilities and about a dozen games, including the relatively recent PopupFolder and the Eddy Award-winning 3 in Three. After running Inline Software for six years, Darryl sold the company to Focus Enhancements, which has done little with the Inline products. Next, in mid-1995, Darryl founded Cyberian Outpost, a retailer of hardware and software on the Web. Cyberian Outpost is unusual in the Internet retailing market for being run primarily on Macs and catering more to the Macintosh world than many other Internet retailers.
- [Adam] Can you tell us about the history of Inline Software - who, why, what products, and so on...?
[Darryl] It's a funny story. Inline was started purely by accident. An old friend and I had started a company called Inline Design that was meant to be a furniture and yacht design firm. While we were trying to pull that together, I went to northern California for a few months to write articles for magazines, mostly automotive-related (when I am not in front of my computer I am probably watching a race with my three-year-old daughter), and finally bought myself a Mac instead of writing on legal pads. I bought a Mac Plus, a $750 20 MB hard disk, an ImageWriter II, and a 1200 baud modem.
However my writing productivity went directly into the toilet as I discovered the world of BBSs and CompuServe. I slept an average of two hours a night for the first six weeks I had the Mac and actually wrote a few freeware HyperCard stacks that found their way around the planet. I think I downloaded every file on every Mac BBS in northern California within a few weeks. I couldn't get enough of it. I was seriously hooked on my Mac and thought of pitching a tent in Cupertino just to hang around Apple.
In any case, I returned to my native New York City, got heavily involved with NYMUG, and found out that the friend I started Inline with had actually been accepted as an Apple Developer. He did it just so he could buy a Mac II for half price, but for me, it was a gold mine of information and tons of cool stuff with Apple logos. I loved it! However, Apple called one day to ask what we had developed since that was a requirement to stay in the program. The thought of losing my flow of Apple stuff was so horrifying that I decided to find a way to stay in the program.
It turned out that my friend had a friend who was heavily into gaming and was just finishing a HyperCard-based game called Bomber, which he intended to post as shareware. I convinced him to let me publish it by saying that if we sold 5,000 copies we would have about $100,000 in return. He bought the proposal and off we went. Rather than start another company, I used the Inline Design name we had already registered. Since I did not anticipate this being much more than a way to stay in the developer's program, I didn't want to spend an extra dime. I was still working in the film business as a gaffer so I had to run Inline on my days off and at nights.
- [Adam] A gaffer? Hang on a second. You just said you had started a furniture and yacht design firm, but had gone off to California to write articles for automotive magazines. Where does being a gaffer fit in - and what the heck is a gaffer anyway?
[Darryl] A gaffer does the lighting for film and television, although I lit mostly television commercials. I had been working as a gaffer for about 10 years when we started the design firm. Since the design firm never really got going, I continued to earn a living making commercials for Federal Express (the funny ones), McDonalds, Nissan, Miller Lite, etc.
And, if you want a great piece of trivia, the term gaffer comes from the old days in England when a gentleman went around lighting the gas lights each day at dusk. The tool he used to reach up to light the torch was called a gaffe. Now your readers know a top trade secret.
- [Adam] Sorry to interrupt. You were saying about Inline Design?
[Darryl] Meanwhile, back at Inline Design, in short time we had sold over 10,000 copies [of Bomber] and I made a decision to resign from the film craftsman union and devote myself to Inline. I didn't have much choice since I was running the company out of my studio apartment on the Upper West Side and manufacturing the product on the bed. I would shrink wrap boxes until four or five in the morning each night. Since we included a free pair of headphones in every box, and I had to buy them in bulk, I had cartons piled to the ceiling in every square inch of the tiny apartment. The neighbors thought something strange was going on, but then again, we had the police running through the building on a regular basis with their guns out looking for burglars, so it was easy to overlook the shrink wrap fumes.
Eventually I got married and moved to the woods in Sharon, Connecticut. My wife helped me run the company out of a spare room, and we got a company to manufacture the product. We came out with Darwin's Dilemma in 1990 and in 1991 released Swamp Gas Visits the USA, 3 in Three, and Mutant Beach. 3 in Three won the Eddy Award that year for best game. Swamp Gas was nominated as well, but lost out to Kid Pix. And, we finally hired our first employee.
As sales grew we decided to leave the house for a real office. So, we packed everything up and moved to a gorgeous 7,700 square foot, 150-year-old Victorian house that had been converted into corporate offices. We added more employees and released several more titles, including the Microseeds line of utilities that added considerably to our product line. New titles and re-released titles included Firefall Arcade, Swamp Gas Europe, INITPicker, Redux Deluxe, HAM, Icon 7, and PopupFolder.
- [Adam] Why did you decide to sell out to Focus? Was it a good idea, in retrospect?
[Darryl] There was no question that the rapid consolidation in the software industry was beginning to hurt us. It was difficult to compete with companies that could afford to lose $50 million in one year (Spectrum Holobyte). Then Microsoft entered the consumer market and hired a small crew of 500 people to make it happen. The writing was on the wall. It was time to get out.
We looked at many alternatives and felt pressure to move quickly. In hindsight, we made the wrong choice in a big way. It's no secret Focus has done nothing with the line and has lost a few of the titles completely due to lack of effort. As much as I would love to say more on this issue, I am contractually bound not to tell the real story. Too bad too, it's a good one...
- [Adam] OK, enough about Inline then. What gave you the idea of starting Cyberian Outpost?
[Darryl] Frankly, I needed a job. When I returned from my seven months of exile in Woburn, Massachusetts trying to run Inline for a company that didn't have a clue about software, I spent my first unemployed time in 23 years thinking about what to do. I had a few offers from software companies to run them, but I felt strongly that the time had passed for small, ill-funded software companies. So, I went to San Francisco for Macworld Expo, which I hadn't missed in nine years, and did some consulting there. The other thing I did there was buy your book, Internet Starter Kit for Macintosh.
- [Adam] Thank you.
[Darryl] Although I had been an online junkie since I bought a Mac, I had never explored the Internet. I had spent thousands of hours on CompuServe, a few hours on AOL (never my favorite place), used CONNECT (how many of you remember that dismal affair?), tried Prodigy (for about 10 minutes), and ran a BBS for NYMUG. But on the plane home from San Francisco, I read Internet Starter Kit for Macintosh cover to cover and decided to become an Internet junkie.
I got home at around 2 AM, did some research on Internet service providers (ISPs), and was happily surfing the net by noon. The guys at Connix (my ISP) still think I'm a bit nuts. I told them I had to have an account right away and could not wait. Basically, I told them it was a matter of life or death. Dramatic, eh?
So, I fired up MacWeb (thanks for the disk in the book!) and saw the Web for the first time. Within a few minutes I knew I had found my place in life. I saw instantly that the Web would change everything. Global boundaries disintegrated. Computer platforms would become irrelevant. Retail would never be the same. OK, so maybe some of these ideas took a few weeks to put together, but I spent 12 to 16 hours a day on the Web and visited thousands of sites during that time.
Eventually, the idea of conducting computer retail on the Web began to form. I felt the Web provided huge benefits over paper-based catalogs and retail stores, and that by using the technology to its fullest, a virtual store could grab market share from the established players. Hundreds of hours went into the business plan and research. And since most of the research took place on the Web itself, it was a real pleasure putting in the time.
- [Adam] So you started Cyberian Outpost. The media talks a lot about how no one's making any money on the Web. Are you?
[Darryl] Yes. We are probably one of the very few making money. We are not making much, as we prefer to re-invest nearly all our earnings in growing the company, but there is no question that we have done extremely well.
[Tune in next week for the second part of this interview, in which Darryl talks about his experiences with Cyberian Outpost. -Adam]