Dr. Dobb's Journal May 1997
To futurist George Gilder's way of thinking, we might as well stick a fork in the retail software business because it's all but done. In a recent speech sponsored by the Silicon Prairie Technology Association, Gilder told attendees to "go to retail [computer] establishments. There's nothing but Microsoft software and CD-ROMs [occupying] limited rack space. The whole system will break down [before long]."
Actually, you don't have to go far to see the truth of this statement -- just walk to your local Software Etc. or Egghead Software store and look around. Say what! They're not there anymore and the floorspace has been converted to a Starbucks? That's right. Egghead recently closed 77 of its 156 stores, citing sagging sales due to competition from the superstores. According to analysts, Egghead can't offer the variety of products of superstores, which heavily discount software to lure customers.
Meanwhile, Software Etc. is trying to rise from the ashes of its bankrupt parent company, Neostar, which was acquired by Barnes & Noble chairman Leonard Riggio. Although analysts again attribute Software Etc.'s fall to intense competition from superstores such as CompUSA and Best Buy, Riggio claims the downfall was due to the 1994 merger of Babbage and Software Etc. -- a merger that tried, and failed, to fuse two different ordering, merchandising, and inventory systems. Riggio plans on making another run at Software Etc.'s traditional mall-based format, keeping a similar mix of video games and software titles.
So where will users go to buy software in the coming years? Gilder believes the primary means of software distribution will be the Internet. Actually, Gilder has been singing this song for a number of years. In his 1990 book, Life After Television: The Coming Transformation of Media and American Life, Gilder said that "in every industry -- from retailing to insurance -- the key impact of the computer-networking revolution is to collapse the costs of distribution and remove the middlemen."
I guess Gilder is called a "futurist" because his prediction already seems to be coming true. With the advent of online marketplaces such as BuyDirect (http://www.buydirect.com/), Software Unboxed (http://www.unboxed.com/), and Saturn Solutions (http://www.e-warehouse.net/), you can buy and immediately download (most) software directly from the vendor. Interestingly, Egghead claimed to be the first major software retailer to begin delivering software over the Internet (although not directly from the vendor).
Additionally, tools to make online software distribution more secure are now emerging. Egghead uses Release Software's SalesAgent (http://www.releasesoft.com/), a try-before-you-buy technology that lets you try a program for free, then cuts you off if you don't buy a digital key. A similar tool is NetSales ESD software (http://www.netsales.net/); and Netscape recently announced that its client software will support signed objects to help cut the risk of downloading uncertified Java applications.
Overall, analysts project that electronic software distribution will account for as much as 20 percent of retail software sales by the end of this year. By the year 2000, they speculate that it will overtake storefront and mail-order sales.
All this boils down to one question: Where will users buy software -- from superstores like CompUSA and Best Buy, or from web sites such as BuyDirect or Software Unboxed? This is where factors such as price, convenience, and service come into play. For the sake of comparison, let's compare two real-world scenarios.
I recently got bit by the buy bug at 9:30 one night, jumped on the Web, compared prices, ordered some hardware/software from MicroWarehouse (http://www.microwarehouse.com/), and had my purchases delivered by noon the next day. When I didn't like the SCSI card, I called the distributor, ordered another one, and boxed up the first card, which was picked up that afternoon by express courier (at no cost to me). The new card was delivered by noon the following day. Simple, fast, and efficient.
Compare that to the experiences of Ronald Kahlow, a Virginia software developer who recently made headlines after shopping at superstore Best Buy. Kahlow, who runs the Performance Software Group (http://www.netpsg.com/), a vendor of HP 3000 software, went to Best Buy to compare television prices. A careful shopper, Kahlow knocked out an Access database to record price, model, and related information. But when Best Buy's sales clerks spotted him keying data into his laptop, they told him to stop -- and when he didn't, Kahlow was arrested for trespassing. After posting a $500 bond, Kahlow returned the next day with a pad and paper -- and was again arrested. The case went to trial, and he was quickly found not guilty. At this writing, he's back in court -- filing a civil suit against Best Buy. Kahlow offered to settle for his legal costs, an apology, and a statement from the chainstore that customers can record prices. Alas, he hasn't heard back from Best Buy.
Clearly, Kahlow's experience reflects an attitude toward customer service that's far too common in superstores -- one that opens the door for what Gilder sees as a shift in the retail system as we know it.
--Jonathan Erickson