Walter Forbes, Chairman of Cendant Corporation. Walter Forbes was the founder,
chairman and CEO of CUC International Inc., a membership-based, consumer
services company. Over the years, he has partnered his vision for
value-oriented, convenient services with new and emerging technologies to shape
what is regarded as the leading consumer-services company in the emerging
interactive marketplace.
The Interactive Revolution
Thanks. Another way to say
what was just said is that I've been
wrong longer than almost anybody.
I want to run through sort of our
vision of what we think is happening
in e-commerce. As usual Senden's
vision is different from anyone
else's. We are pretty good at staying the
path and executing. We've been
saying for a long time that retail sales
on the Internet are going to far
exceed other peoples thinking. That
thinking is catching up now.
When you think about what is going on in the physical world, only
about seven companies do about 80
percent of general merchandise sales in
the physical world. And if
that's true, intellectually, I have to believe
that on the internet, you can check
prices, and your going to hear a lot
about price today, that it can't
really anymore in a category. In fact, I
would say to you that 80 percent of
the business in any category is going
to go to very few players. And
those players are probably going to be at
the very low end of price scale.
That's certainly what is happening in
the physical world. But here it
should be even more so.
So there's going to be a tail. There'll be 80 percent with a few
and then there'll be a tail with a
lot of smaller companies. But these
companies are going to come and go
more quickly than we've ever seen
before. It's easy to start a
company in the interactive age. It's very
hard to make money, as you're
noticing. So, low barriers to try, high
barriers to profit. I think
highly concentrated, in terms of sales in the
long run. It's sort of
interesting in a way, we compete with Moore's Law.
You know, we can wonder why.
I think why is that they're sitting
out there in big boxes on expensive
street corners and they've got to do
something. So they're still selling
their product and they're sort of
still denying what's happening out
there. And what's interesting
to me is that all their costs are going up.
Health care, people, taxes, real
estate. And all our costs, database,
telecommunications, are all going
down. Again, huge pressure on margin:
price, price, price. Some of
the new companies out there on the Internet,
some, in our opinion, suspect
business models. We logically think that
the consumer has got to be the big
winner here. If you can put product on
in front of everybody, and you can
check price instantly, there is really
no reason to buy from anybody who
doesn't have the lower price, when you
can go somewhere and look at all that
information. But why wouldn't you
just click over and buy at price?
And as price comes down, consumer
benefits, and margins start really
getting touch. And they basically,
intellectually, go away over time.
So, if that's true, you have to make
money some other way.
Our way is membership subscription model and I'm sure there's
probably some others. But if
your counting on a lot of margin to sell a
product and make money in an area
where you can get perfect information,
complete assortment, and price, I
think it's a tough way to go. If you
think about it, the basic retailer
today depends on non-perfect
information. What a retailer
needs is to have you in that store that's
your entire universe. And it's
got to convince you that this product is
the right product, only because they
have it and the price is okay. And
so perfect information is the map of
any retailer. Yet, that's what the
interactive world does. It
provides perfect information. So that's what
makes this channel different.
That's why when people say catalogs only
got 5%, retail sales, or whatever.
Although, they're still going faster
than stores. Some people say
the interactive world can't do more than
that. Well, they're missing the
point.
Catalogs didn't change anything. It's not a lower price. It's
not perfect information. It's
not complete assortment. So this is a very
difficult channel, with very
different implications. So what's our view?
Well, our view is that we ought to put everything in one place.
So we sell everything to everybody,
everywhere. Impossible in the
physical world, but in this world
it's really not. It didn't take us that
long to put up a lot of the assets of
the Net Market. A bookstore in
sixty days, with 4 million books in
there. So you can add product very
rapidly if you have the operating
system and if you have scale. And one
of the huge advantages we have is we
have these tens of millions of
individual members that we've built
up over the phone, who have provided
the scale. They're giving us
the volume. Making us important to
everybody that we want product from,
to give to our members. We can in
fact accomplish this goal and we've
done a pretty good job. Net Market is
a brand. We're building that
brand. It's an advertising free
environment. You come in there
and the relationship switches, something
that is missed by most retailers is
that when you pay a membership fee,
you've kind of changed your
relationship with that service. Now it isn't
really a store. You've paid us
to be on your side.
So now, we're not going to sell you anything. We're going to say
here's all of the products in the
category. Here's every TV. Here is all
the information you need to compare
and see what features you want, and
here's the guaranteed lowest price.
And most importantly, if you order
it, you know it will come. And
it will be what you ordered. It will come
with customer service and everything
built in. And it will be a very good
experience. Our renewal rates
have proven that over time.
People like that. But it's a different relationship. You don't
come to our Net Market to get sold
something. We don't care if you buy or
not. But you can use that
information to shop locally, it doesn't matter
to us. So it's a very different
model. How's it working?
Well, we have 7 hundred thousand members, we're adding over one
hundred thousand a month.
That's pretty good, because we're not strained
from adding phone members. In
the first quarter this year, 4 million
gross members to the Senden
membership. 4 million in the first quarter of
this year. Now most of those
are on the phone. That's still the best
thing for us to do because
interactive is not a mass market yet. And
that's where all of our dollars are
going. Phone members, we'll convert
them later when it's a mass market.
So the one hundred thousand plus
members, ranging from sixty to
seventy dollars a member. We think that's
very strong and we'll play that out
in the next couple of years. We
should be able to get to several
millions of members using Net Market.
And those memberships are pretty
profitable over time. So let me say
what's working for us because we
don't use traditional advertising.
We're a direct marketer. What's working on-line is sort of
interesting. Pop-ups do work.
On-line pitches at check out work.
Anything on AOL works.
Tremendous affinity. And Netscape works real well
too. Sweepstake buttons work
which, if you've really spent a lot of time
out there are all over, work well.
Cross marketing works if you have a
specific reason to cross-market.
And our non-member/member situation
works. So you can come into net
market as a non-member and buy something.
But as you do that you'll see that
just for trying a membership, you can
save a lot of money. This is
sort of what does work. But what's really
not working as well, in our opinion,
is this whole real estate question.
Because, if you go to one of these sites, and I won't mention
names, but, you buy some real estate
and you think your on the ocean
front. About six sales later
you're in Ohio. There's unlimited real
estate there, and I'm not sure what
is really accomplished. But what we
do with our relationships is we get
marketing rights, because at the end
of the day, it's the person that has
the customers, the person that has
the buyers, the person that has the
most members, has the volume, is going
to be the big winner here. So
we don't mind having real estate on laces,
but it's the marketing rights that we
think are really important.
The other thing that I think is sort of ahead of its time is this
whole filtering. Now we can do
it. It's not hard. People are talking
about knowing exactly what you as the
consumer want. And filtering down
and one-on-one marketing, and all
these other terms you hear about. In
the long run, yes today that's out of
synch with human behavior. People
still come into a supermarket to buy
X and come away with Y. And it's not
that much different with the
Internet. So while that is important in the
long run and you can gather a lot of
data, right now I don't think that's
where the game should be. And I
think people are focusing a little too
much on it in our opinion.
Here's why we like the membership model.
We took a look at typical retailers last year. A good one had to
sell 8 billion dollars worth of stock
to make around one hundred million
plus in profit. That's a pretty
hard way to go. The best model we could
find for an online transaction
retailer, at 3 hundred million in sales,
and still losing money. And
that maybe the best plan for that. I don't
have any idea if that's a good plan
or bad plan. But when you look at our
membership over time and our renewal
rates over time. If you just get a
million members, you have a very
profitable business model. And if you
play that out over time, it becomes a
mass market. Then the tens of
millions of members that have a phone
become tens of millions on the
interactive world. It's a much
more profitable model. Much easier to
make a hundred million dollars
selling membership and product. Especially
when this person is selling product
for margin. Our thesis is that
margins are going down and are
getting tighter and tighter.
So we're really committed to subscription model. Now what are we
trying to do? What's our plan?
Well, our plan is to win the following
areas.
Shows Demos
One of the key things in that market
is local discounts. We own something
called the entertainment book, about
one hundred and thirty editions in
the US and Canada. And that
allows you to get local discounts to your
local dry cleaner, restaurant, and
Movie Theater. So when you come to Net
Market, you want to start the
discounts right at your local doorstep. We
think that's absolutely critical.
An entertainment member gets about
twenty five to thirty five
transactions. That gets you the frequency of
visit. You don't always buy a
TV. You may not want to look at automobile
information. Local discounts
are critical. We think we win that. We've
got a huge market share and we're
taking that around the world because
this soon is obviously world gain.
We also happen to be building a sidewalk for Microsoft. We have
that presence. And I don't
think that anyone else is going to be able to
do that. Secondly, real estate,
what are our assets in real estate at
Senden? They're pretty
impressive. We're involved in 2 out of 5 home
sales today. We run rate on
mortgage, origination is now twenty five
billion. We're number one in
re-location. We have a major presence in
real estate. We own the brands:
Century 21, ERA, and Coldwell Banker. We
have an off-balance sheet company
that is buying other brokerages and
affiliating. So we have a major
presence in real estate. Well, why do we
care interactively?
We care for a lot of reasons. Number one: interactive arena is
going to be important to getting real
estate over time. So as you go to
buy a home, there are seventeen major
transactions, and we want to do them
all. It's not just selling
appliances, having you buy your home service,
but it's also getting your phone
service from us, your security system, we
want to do it all. And that
presence in real estate, we think, gives us
huge leverage. We think that we
can be a major winner in real estate in
the interactive world. Plus,
I'd add, you can't really say you're going
to sell everything to everybody if
you don't have a major presence in
classified ads.
So we've been buying classified ad publications, literally all
over the world and we've bought a few
more since this slide was done.
Now, these are classified ad
newspapers, a very profitable business. If
you look at our markets, we're taking
these classified ads onto the
Internet, and I'm not sure if they
work better on the Internet but we're
going to continue to buy classified
ad papers and continue to move that
over to the interactive world.
Because classifieds, again, huge number of
transactions, and if someone goes to
do a transaction in the classified ad
world, you can see that ad in real
time. So theoretically, you go to buy
a used car in Paris, where we have a
huge presence, you can say well if
you go to buy that car from someone,
why don't you get the insurance from
us, why don't you buy our auto
service, and on down the line. So
classifieds major effort. And
then entertainment as you may know, the
little known fact, that I think we
sell more units of consumer software
than Microsoft these days.
Although, no where near the dollar volume,
unfortunately. But we are the
number one producer of entertainment
CD-ROMs, educational CD-ROMs.
At least a month or two ago, we were about
number three in productivity.
So we have a major presence in
entertainment. Again,
entertainment is a huge part of where people spend
money. So we have our first
sort of beta of a Net Market for
entertainment, if you will.
We're going to take all of our multi-player
gaming assets and all of our
entertainment assets and build a lot of games
that are traditional. That
wouldn't necessarily be on CD-ROM and over
time build a major entertainment
site. Why?
Well, it's like real estate that gets tremendous amounts of
traffic flow. Helps our core
businesses, but again that traffic won't be
generated in Net Market sales and
covering all the dollars the family
spends. It's going to develop
over time. But we are a major player in
this already. You can try to
set up. Coming soon, obviously won't talk
about it, Net Market will have a
business to business application
especially for small businesses/home
offices. And we have a tremendous
amount of assets in the education
world.
Not only are we selling something to every school, our educational
CD-ROMs are number one. We're
using EDU-cash where we can push our own
out to teachers. So eventually,
we'll juice up the education. Again, a
huge part of where people spend.
So what are we doing?
We're really building Net Market for a market place that isn't
there quite yet. Because in
fact, the Internet is not a mass marketplace
from a consumer standpoint. The
average consumer is not spending that
much money on commerce there yet.
But we happen to believe it is. And
believe that if you don't build it
now, it's going to be too late. And if
you go through Net Market you'll see
that we've made a lot of progress.
You can go into Net Market today and
buy a box of cheerios, auto service,
you can get a car, buy a trip, buy a
TV, buy almost anything. We will
build that over time. We want
to be the most significant shopping site.
We want you to think that Net Market
is the place where, if I want to buy
something, I'm going to go there, to
Net Market. You're going to see
complete assortment, I'm going to get
perfect information, and I'm going
to get the lowest price.
Shows Net Market
Compares prices to amazon.com and
Barnes and noble
Agent wars - prices come down
You have to think a little beyond what you're reading and think,
"where is this logically
going". It doesn't go where most people say it's
going to go. Unless consumers
are going to change their behavior. And I
have not seen a retail strategy of
any kind in the physical world in the
past fifty years that has provided
the same product, same customer
service, same quality, at a lower
price, that didn't take big market
share. Take Wal-Mart for
example and what they've done. So this is what
can happen. Here you only have
to click, let our agents run out and do it
for you. I think this is pretty
powerful. I think to retailers and
others, this has to be a scary
thought. What really matters here is
price, price, price.
Shows demos of Net Market travel
Answers questions.