Trawling For $1 Billion

Dec. 21, 2004
If there was any doubt that the Internet is capable of selling anything more substantial than flowers and books, it's forgotten now. Just ask Cisco Systems.

Through its immensely popular Cisco Connection Online (CCO), San Jose-based Cisco Systems Inc. expects to sell $1 billion worth of networking products this year, making it by far the biggest World Wide Web-based marketer in the world. For a company with $4.1 billion in sales, that figure represents nearly one-fourth of its business. "We are keen on leveraging the network for all business transactions," says Cisco's Internet marketing guru, Chris Sinton. "This is the largest commerce site on the World Wide Web today." True, Cisco is in the networking business, so it's hardly surprising that a company whose products help connect more than half of the businesses on the Internet would be selling its wares online. But the company is setting the pace not only in the use of the Internet as a marketing vehicle, but also in the way it's employing some fancy new technology to support the cyber-selling process. "No one in industry is doing this," says Dave Rome, vice president in charge of marketing at Calico Technology, a software firm that makes systems for configuring products via a Web site. "They are truly leaders in this technology." The idea of putting the Internet to work as a new sales channel, while not exactly new, offers a perfect fit for the technology, according to its proponents, who, like Cisco, usually tend to be in businesses that can make a buck off its success. "Being able to take orders with Web browsers is a natural extension of the Internet," observes Irving Wladawsky-Berger, general manager of IBM Corp.'s Internet Div. Cisco, the leading supplier of networking hardware including routers, local- and wide-area-network switches, and dial-up access servers, has been selling its products through its World Wide Web site for less than a year. In the first seven months of operation, it did more than $125 million in sales via the Internet. The company initially used its Web address to offer customers product information as well as service. But in March 1996, Cisco Marketplace went online, offering customers the ability to configure their own products without having to depend on a salesperson. Essentially an electronic store where more than 10,000 Cisco customers and sales partners are registered to purchase merchandise, Marketplace includes an Internetworking Product Center containing information on 12,800 parts. Cisco sales partners-resellers of the company's networking products--as well as customers who have been granted access to do business with the company online, can use the e-store 24 hours a day from anywhere in the world. "It is very natural for manufacturers to open up their part databases and let everybody in their extended business family connect," says IBM's Wladawsky-Berger. The secret to the company's e-commerce success is the system's built-in intelligence that filters out erroneous orders before they can even get into the process. This is done through a sophisticated sales-configuration software package from San Jose-based Calico. By shifting much of its business to the Web, Cisco is easing the burden on its order-entry staff, who typically must correct 10% to 15% of all orders that come in by facsimile, about 350,000 during the last fiscal year. "Something about those orders required rework," explains Sinton, Cisco Connection's senior marketing manager. "With the configurator built in, 100% of the orders we receive over the Web site are correct the first time." What's more, the placement of a correct order-versus one via fax that needs fixing--reduces the lead- time Cisco needs to deliver the product by two to three days. A key enabler for Cisco to market its complex networking hardware over the Web, the Calico software--one of IndustryWeek's 1996 Technology of the Year award winners--is designed for companies such as Cisco whose products have a high degree of variability and are custom-built to order. Instead of simply allowing customers to choose products, Calico's Concinity system enables them to look through the various options, make selections, and learn which configurations are possible and which are not. The accuracy of orders is ensured, because the system guides the customer through a series of questions to design the product's capabilities. Instead of being turned away, customers who pick combinations that won't work are guided to make alternative choices based on which aspects of the product have greater priority for their needs. "The customer using the Web site gets the same behavior that he would with a really good sales rep," says Calico's Rome. "He knows all about the product, he lets you start the order process wherever you want, and he never says no." Furthermore, Cisco is spared the task of training all of its value-added-resellers (VARs)--essentially distributors--about each and every product configuration. "By using the Web, they bypass all that, because the VARs don't have to know all about the product to make sure it's buildable and workable," explains Rome. Lest anyone think Web-based sales are putting Cisco farther away from its customers, the opposite is true, the company asserts. "It's not about putting distance between us and our customers," Sinton counters. "With automated teller machines, people still wanted to see a teller when they need to, but they wanted self service in convenient locations at any time, day or night. Our customers enjoy the same kind of service and availability." With sales growth in the first few months of Cisco's 1997 fiscal year spurting 80% ahead of the same period last year, just trying to keep up with orders has been a challenge. Admittedly much of Cisco's growth has come as a result of a spate of acquisitions in recent years, including the $4 billion purchase of StrataCom in April 1996. The acquisition boosted Cisco's market share in a popular new technology called asynchronous transfer mode (ATM) switching, while filling out its overall product suite of networking hardware. Other companies Cisco has acquired in the last few years include Granite Systems, Internet Junction, Kalpana, and Crescendo. The net result has been skyrocketing demand for the company's devices. Sinton says that by absorbing much of the company's growth in orders during the last few months, the Web site has eased some of the burden on the headquarters sales staff. "The Web site has made us better able to meet the business demands," Sinton says. "Our salespeople are not just order takers--they can build relationships with customers and focus on more important issues as a result of not having to handle this extra volume." And it's not just the sales area that's getting Web-derived benefits. Cisco's marketing and product-support costs are being held in check as a result of having all technical documents and marketing information sent to resellers and customers over the company's intranet for partners, also accessible through the Web site. "We expect we will save $280 million this way over the next 12 months," Sinton says. As an added benefit, Cisco's service operation is able to catch its breath from the company's breakneck pace of growth. In December the company logged some 50,000 status checks of orders in progress or service orders via the Web site. "That's 50,000 telephone calls that customer service didn't have to take that month," Sinton says. Another 66,000 product order inquiries were handled in January. The electronic store includes something called a Status Agent. Using a tracking number similar to what a company such as Federal Express uses to track packages, Cisco gives each customer a tracking number to find out where the product is. The ready availability of pricing information through the company Web site also is attractive to customers. "People would rather use the configurator tool combined with pricing," Sinton explains. When configuring a $100,000 router with the attendant software, memory, and cables, customers nearly always want to know what this network beast will cost. Customers also like the idea of being able to get their own information at their own pace, rather than having to wait for a salesperson to get back to them later on. "We used to have to catch the sales rep on the road somewhere," says Jay Kohn, network systems manager at Stanford University in Palo Alto, Calif. Stanford operates a vast organization-wide intranet with some 30,000 users on 300 network segments. "With the old method, we had to use e-mail or voice mail to contact the sales rep, and then she'd have to work up a quote," Kohn says. "We had to go back and forth and take a lot of time leaving messages for one another before we could place an order. There's a tremendous time savings." "I can't always count on the sales rep to be there when I need the information, but with the Web site we can do all the product configuration, pricing, and pre- and post-purchasing work," she adds. When all is said and done, Stanford still executes the actual purchase in a traditional manner, via a requisition through the school's purchasing department. "The actual order placement is important, but for us it takes a lot longer to configure the product and get a price for it." And doing it yourself beats the heck out of waiting for an answer. "Getting the answer yourself is superior to waiting on hold," says Scott Lundstrom, senior analyst for electronic commerce and the Internet at Advanced Manufacturing Research, a Boston information-technology research firm. Cisco's model is likely to be copied by companies in a variety of industries. "Especially in the engineer-to-order businesses, the Cisco model will become common," says Lundstrom. "The biggest challenge for these companies is getting the customer the right product configuration." The electronic-commerce market is expected to ring up $95 billion worth of trade by the year 2000, according to International Data Corp., a Framingham, Mass.-based information-technology research firm. An estimated 95.6% of those sales will be business-to-business transactions, not consumer-to-business, IDC figures. "I think business-to-business network commerce is where the bread and butter of Internet commerce is today," adds Sinton. Meanwhile, Cisco is enjoying the fruits of being one of the early adopters of Web-based selling technology. "What they're doing is automating the mundane parts of commerce, so that these complex products can be sold efficiently," says Calico's Rome. "It's created a massive advantage for Cisco." He thinks other industries will follow suit. "The problems Cisco has seen and conquered and applied to Internet-driven business are going to be faced by other industries."

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