XOOM.com
is staking its claim in a previously uncharted territory: direct e-commerce via
e-mail.
Trailblazers. Visionaries. Pioneers. There are very few people -- or
companies -- that can live up to these lofty titles. But XOOM.com is one of them. XOOM.com is staking
its unique claim in a previously uncharted territory: direct e-commerce via
e-mail. The pioneering Internet company is creating a new way for consumers to
shop online by gathering a variety of Web merchants together on one e-commerce
site. XOOM's home page provides members with access to other popular online
venues such as Amazon.com, eBay and BuyDirect,
allowing them to purchase anything from music and electronics to computer
hardware and software -- often at special member prices.
Laurent Massa and Chris
Kitze founded XOOM.com in September 1996 with e-commerce in mind from the
beginning.
"Lots of people were telling us we were crazy because
two and a half years ago, there were problems with credit card acceptance, and
people basically weren't willing to use their credit cards over the Net,"
recalls Massa, president and CEO of the San Francisco-based Internet company.
"But, nevertheless, we started the site."
Massa and Kitze were perfect partners, with complementary
skills that enabled XOOM to hit the "virtual" ground running. Kitze
was an entrepreneur who had previously started and sold three interactive
businesses of his own, and Massa's prior experience included managing
operations for high-tech, publicly owned companies. Together, they would create
a concept unlike anything else the Web has known.
Early versions of XOOM.com featured downloadable software on
a subscription- only basis. But Massa says that after only a few months in
existence, the groundbreaking duo learned their first Net-lesson: The Web is
karmic, and you have to give, give, give before you can get something back from
your visitors. So approximately six months after launching XOOM, the founders
began offering their services gratis, and Massa says the result was a dramatic
spike in site traffic. (The site now boasts more than 6 million members and
23,000 new "XOOMers" signing on daily.)
To better understand XOOM's near-overnight success, it is
necessary to take a closer look at the unique business model that allows the
cutting-edge company to enjoy revenue streams from both e-commerce and
advertising activities, without much physical inventory. Labeled a zero-gravity
business model, XOOM.com acts as a platform where members go to purchase goods
and services from third-party suppliers, all under the XOOM brand name. Leading
online auctioneer eBay has made this a popular model on the Web, and XOOM
picked up on the concept quickly.
Massa says the beauty of zero gravity is that it can be
expanded infinitely.
"We are zero gravity on the front end, meaning that if
you compare us to a traditional catalog or direct-marketing company, we don't
have to print anything or send anything physical to reach buyers," explains
Massa. "Everything is done electronically through e-mail."
While the company is still moving toward complete atom-free
sales, the advertising budget for XOOM is completely dollar-free. And the
business plan doesn't currently call for investment in this area.
"We know from our experience on the Internet how to
create traffic without having to pay for it," boasts Massa. He says XOOM's
visitors are attracted by a compelling suite of free services, including clip
art, movies, buyers clubs, chat, e-mail and more -- unlike some sites that
offer viewers free Web page development as their main draw.
Beyond XOOM's eclectic array of free services that bring
members back again and again, the site permits members to pick and grab XOOM's
services for use in other venues on the Web -- something no other e-commerce
company is doing. For example, XOOM allows members to lift chat rooms and page
counters from its site and incorporate them into their own personal Web pages
or even a Geocities-branded home page.
"That's a very important differentiator for us,"
reveals Massa. "We don't force [members] to do everything at XOOM because
as far as we are concerned, the relationship we want to have with the member
begins with just knowing them – their name, their e-mail address and some other
demographic data."
Massa adds that XOOM's online communities allow the company
to employ niche marketing. XOOM's philosophy is that people will join areas or
engage in activities that relate to their interests or obligations, thereby
qualifying themselves for future targeted product and service offerings. This
network theory helps bring new visitors to the XOOM community through word of
mouth, and potential members need not be on the XOOM site in order to join.
"It's like we own 400,000 billboards on the side of the
freeway, and we can push messages to people based on that," explains
Massa. In fact, according to Media Metrix, during any given month in 1998,
about one-third of Net users touched XOOM.com, and a good deal of those
visitors purchased from XOOM, making its zero-gravity model one of the most
prosperous on the Net.
Massa says the company's success is due, in part, to early
and ongoing customer conditioning. Moments after joining, XOOM e-mails new
members a discounted offer, along with their account name, password and a
"thank you" for signing on. Massa says XOOM sets the tone up front,
telling members about the free services they will enjoy regularly, and
preparing them to receive special offers for additional products and services
in the future.
"We are the first to really develop this model of
direct e-commerce using the main medium of e-mail, and I believe we are still
ahead of the pack," says Massa. The Internet maverick has being mastering
the art of direct e-commerce via e-mail for a year and a half and sends tens of
millions of e-mails to members each quarter.
XOOM is not yet completely zero gravity on the back end, as
it does sometimes stock some
inventory, such as software. But the vast majority of its sales are made up of
products that the company never physically touches, instead acting as an
eclectic platform for the goods of other online merchants. Massa says that as XOOM moves toward its ultimate goal of complete
zero gravity, the company wants to continue to own the e-relationship with the
buyer.
"We want XOOM to be perceived as the merchant," he
explains. "We want to keep them in the XOOM environment as far as
purchasing is concerned, so that whatever product [users] buy, it comes in a
box that says 'XOOM' on it."
XOOM's road to success has not been without its speed bumps.
Besides having to learn that the way of the Net is to provide free services,
Massa says they faced another difficult obstacle in coming to grips with a
second, related Web reality: You have to lose money, at least in the
short-term, to grow the mass. XOOM's challenge, at this point, lies in ensuring
the parallel growth of the business model and market share. To that end, Kitze,
who currently resides as chairman of the company, is focused on helping build
the management team and developing business and strategic plans. And as CEO,
Massa deals with the daily traffic jams posed by operating a major player in
the world of e-business.
In the beginning, XOOM depended on its founders' bank accounts and angel
investors to fuel the unique, yet risky Internet start-up company. But Massa
says XOOM never received any venture capital, a very unusual feat in the Net
arena. To stimulate continued growth, XOOM went public in late 1998, a decision
Massa describes as easier said than done, due to the summertime market crash.
XOOM lived up to analysts' expectations, however, doubling its stock value on
the first day of trading and cashing in on a hot market for Internet IPOs.
"It was an easy decision to go IPO because we knew we
were going to need a lot of cash to grow the company going forward and to be
active in the acquisition field," explains Massa.
But Massa says managing a public company presents a whole
new set of challenges for the duo. "You are being measured on a quality
basis, and if you don't return the numbers you promised you would, your stock
is going to be hammered seriously," explains Massa. "So the challenge
is truly managing the expectations and running a business."
These are challenges Massa is glad to accept. But he says
perhaps the biggest challenge is understanding the landscape of the Net and
staying two steps ahead of the game.
Even before the IPO, XOOM was playing the acquisition game,
absorbing four synergistic companies to help the upstart attract new
demographics and incite new growth. XOOM finalized four acquisitions --
including Paralogic's ParaChat Network, Sitemail, Greetings Online and Pagecount,
Inc. -- during its two years as a privately held company
"You should expect us to continue to be active in this
area," says Massa. "As a public company, it's a lot easier to
convince people to join forces."
In November 1998, XOOM launched an affiliate program that Massa expects
will prove effective in reaching more people and bringing them to the site.
This network extends a no-risk opportunity for other Web sites to share in
XOOM's profits by earning a commission on product sales generated when their
visitors follow hyperlinks to XOOM.com Deals, hosted on the XOOM.com site.
Recent growth is also stemming from strategic sponsorship
agreements with leading online auctioneer eBay, software retailer BuyDirect,
and search engine Goto.com. XOOM's Buyers
Club Partner Program is also developing rapidly. In January 1999, the company
announced a strategic alliance with InfoSpace.com,
an aggregator, integrator and syndicator of Web
content services, followed closely by the addition of seven new club
members, including DejaNews, Talk City and Net Noir, the Black Network.
Massa says such deals are new ways XOOM is exploring to reach more
targeted audiences. The reason these companies have partnered with XOOM,
explains Massa, is because they are not experienced in selling goods and
services via e-mail. Therefore, XOOM handles the direct marketing for its
partners and shares in the profits.
Attracting an audience that is a bit older, with more credit cards and
buying power, is now an important growth strategy for XOOM. Massa says the
acquisition of Greetings Online, now XOOM.com Cards, has helped the company
toward this goal. "This service attracts a lot more women and older
demographics," explains Massa. "Very naturally, the members of the
greeting card [arena] buy a lot more than chatters, so it is in our best
interest to attract [these] demographics."
XOOM is also working on a branded credit card deal with an undisclosed,
reputable financial institution for its members. Massa hopes that striking such
a deal will boost sales and streamline the company's image.
"Everything we do at XOOM is ROI-driven. It's something
we can measure within
24 hours," explains Massa.
With such a unique business model, identifying competitors
is a challenge. Massa says he doesn't view other community sites as true
competition because although they may be trying to sell goods, some of them
haven't sold anything yet.
Other potential competition comes from portals like Yahoo! and Excite.
But, Massa says, these contenders have to struggle with incorporating
e-commerce into media venues where visitors are accustomed to getting
everything for free based on advertising. "This is not something we do on
the side. The way you run a media company is totally different than the way you
run a direct e-commerce company," insists Massa.
The third potential group of competitors is online vendors
like mega-bookseller Amazon.com. However, Massa says that while these types of
companies typically have a large customer base, their margins are often low,
and most of them don't currently perform direct e-commerce activities.
XOOM has already surpassed many of its founders' original
expectations. But Massa says this is just the beginning, and he openly shares
his goals for the company, both short- and long-term.
"We have over 6 million people in our database, and we
manage another 4 million on behalf of our partners," reveals Massa.
"We would like to keep growing the database and have tens of millions of
people on XOOM that we know a lot about so that we can target specific offers
to them."
Massa says that while numbers are very important, the
quality is critical. He realizes that on the Net, if a vendor tries too often
to offer goods that are irrelevant to members, they will eventually
unsubscribe.
For the new millennium and beyond, XOOM wants to play as a
full zero-gravity company. Massa explains, "We want to give the 'atoms'
part of the business to merchandisers, manufacturers and fulfillment companies
as opposed to keeping it with us, because that is not what we are best
at."
Name: XOOM.com
Location: San Francisco
Founder: Laurent Massa and Chris Kitze
Founded: 1996
URL: www.XOOM.com
Industry: direct e-commerce
Employees: 100
Revenue: $8.3 million (1998)
Copyright © 2000 by Virtual
Advisor, Inc. All rights reserved.