Welcome to the second and final installment of the Darryl Peck interview. Last week, in TidBITS-320, Darryl, <[email protected]>, 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 <[email protected]>). 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.