Online co-op searches for a 'killer application'

Friday 25th February 2000

Paynter's Eforce switch is a good idea but the company is short of credible products

The incredible power of the internet," gushes Eforce chairman Guy Cook at every available opportunity, "is the ability to bring together a large number of people and communicate to this group at virtually no cost."

How this sort of stuff is going down with former Paynter Timber shareholders is a moot point. Shoeshine suspects many of them communicate with Imperial typewriters and carbon paper.

But the business model adopted by their reincarnated company, Eforce, is hardly new. It's based on the time-honoured principle of the shopping co-operative, with an "e" stuck on for sex appeal.

The online version is basically a marketing tool by which producers of goods and services can flog their wares to Eforce's membership. Eforce will charge producers to advertise on its site and will clip the ticket for each transaction done. It also plans to charge for targeted emails.

If this sounds a bit cold blooded - not quite in keeping with the hand-holding tree-hugging spirit of the co-operative - it should be pointed out members can benefit from the business they give to Eforce in two ways.

First, if they use the Co-Buy product they can, by aggregating their demand for a product to gain negotiating and purchasing power, drive down the price they will individually pay.

Second, members are being offered the opportunity to buy, for 5c each, warrants entitling them to buy shares for a further 30c. As shareholders the more revenue and profit they generate for Eforce by using its products, the more valuable their stock will become.

For Eforce it's a chicken-and-egg situation. The big membership benefits and the ad revenues won't come until a lot of people have signed on.

Chief executive Mark Fulton is sparing no effort to attract the 50,000 members - less than 5% of New Zealand's online community - his company has targeted. He is dragging chairman Cook, and his reputation as vice-president of Qwest Communications, around newsrooms and up and down the country on a roadshow.

He has hired PR firm Sweeney Vesty to keep things decorous. A 2.2 million share placement raised $726,000 for a "very aggressive" marketing campaign.

All this might get Eforce rolling but getting consumers to buy online has been proving harder than many have imagined. For Eforce, the key to gaining members and driving up transaction volumes is the quality of the products it offers.

It plans a launch a month. But out of the first four none has the look of a big winner.

First out of the traps is PowerBuy, a tool that allows power consumers to compare the prices offered by competing retailers and switch over.

It may not appeal much to retailers. PowerBuyers will be high-churn business and the costs of taking them on and then losing them will eat up any benefit.

Whether it will appeal to consumers only time will tell.

In the first 10 months of open slather energy retail competition, 65,810 customers switched supplier. At 4.1% of the total that's in line with the international average but it doesn't suggest there is a huge market for PowerBuy to tap.

Eforce's second product, SubscribeNow, allows members to order magazines from around the world. Given falling magazine subscription numbers in this country it will be fighting for share of a shrinking market.

Product Three is Amazon Freightlink, which offers to cut the cost to buyers of books on the Amazon.com website by bulk-freighting them into the country.

Again, the market is very limited. According to Australia Post, Amazon.com sells around 22,000 books a month over the ditch. That suggests maybe 4200 a month come into New Zealand.

Last, and arguably most promising, is Co-Buy, an online shopping co-operative modelled on companies such as Europe's Letsbuyit.com and Accompany.com of the US.

These two offer sports and leisure equipment, home electronics, and computer and IT software and hardware. Accompany.com also carries small business products and holidays, while Letsbuyit.com has motor accessories, perfumes and toys.

The concept seems sound. Online intermediaries can cut out the overheads and margins of wholesalers and distributors by buying direct from the manufacturer. Co-op members request goods or services and a sort of reverse auction takes place, with the manufacturer dropping the price as demand builds.

For Eforce members their chairman's contacts in the US could deliver a vast product range and pooled buying with larger co-ops. Bulk freight arrangements could also cut costs.

But in the short term at least question marks remain over consumer acceptance of a service requiring such a high level of online interactivity. Accompany.com set up shop in 1998 and doesn't divulge turnover or profit data or customer numbers. A spokeswoman did say it had handled "tens of thousands" of transactions.

That volume level, over two years, with the entire US and Canadian online population to market to, suggests it will be a while before the company joins the Fortune 500.

In short, Eforce's line-up so far looks all bells-and-whistles. It lacks a "killer application," a product that will allow consumers to do something so unutterably cool that they'll sign on in droves and then use the company's other products as well.

Certainly Messrs Cook and Fulton have been active behind the scenes. All sorts of new products and alliances have been hinted at.

So far the share price has stayed, at least relative to other e-stocks, rationally unexuberant. It should remain that way until Eforce finds its big drawcard.

The power of the internet may well be cheap communication but the big unknown for business-to-consumer operators is people's willingness to be communicated with.

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