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Using the Web to get lots of buyers together - and save
Friday, August 06, 1999 By Ken Zapinski, Post-Gazette Staff Writer
Aggregation is one of those hot new Web buzz words. To understand what it means, think chicken legs.
Go down to Giant Eagle to buy a one-pound package of drumsticks and you'll pay one price.
Join up with your neighbor to split a three-pound family pack, and you'll save a dime or so per pound.
Now imagine that same dynamic spread across the millions of users across the Web -- people from around the world banding together to get volume discounts on everything from golf clubs to computer equipment.
That's the idea of Accompany, Mercata, even ElectricityChoice.com, a new Pittsburgh-based Web site just now getting off the ground.
On Accompany, for instance, the first buyer of a set of three Callaway women's Titanium 3 metal woods could snag the golf clubs for $364.99, $35 less than its suggested retail price. But if two people sign up to buy before 2 p.m. tomorrow, the price for both of them will drop to $354.99. If four get together, the price drops another 10 bucks.
"I think they're filling a very unique void in the marketplace," said Sue Rothberg, senior analyst with Gomez Advisors Inc., a Massachusetts e-commerce consulting company. "The reason I think this business model has legs is that it's a win-win for everybody."
Unlike at auction sites like eBay, where more customers generally translate into higher prices, greater interest creates lower prices. And manufacturers and distributors can use the sites as a low-cost way to get on the Web and track customer buying habits, Gomez said.
Sanjay Chopra and Marshall Cohen of ElectricityChoice.com think the model can be used by people to cut their electric bills. Their Web site, which they intend to start introducing to the public over the next few weeks, will try to bring together thousands of Pittsburgh- area customers willing to switch to new electric suppliers.
Armed with this customer base, ElectricityChoice.com will try to win a discounted bulk rate from a power supplier lower than what the supplier would offer an individual customer.
"Our focus is selling convenience on the Web," said Chopra, 31, who graduated from Carnegie Mellon University's Graduate School of Industrial Administration in May and is now president and chief executive of the start-up company. "You come to our site, we do the shopping for you. We get a lower price than any individual can get on their own. And it's a hassle-free experience for you."
Or at least it will be. ElectricityChoice.com still needs to be licensed by the Public Utility Commission, so the company hasn't actually put together a power pool purchase yet.
The concept is not far-fetched. Allegheny Energy, for one, is pursuing a related strategy from its end, giving residents of partner municipalities lower and lower rates as more of them switch over.
And ElectricityChoice.com shouldn't have trouble finding an interested supplier. Some power companies that would like to start competing in Pennsylvania's competitive electric industry have been scared off by the marketing costs, such as newspaper advertising and direct-mail enticements. ElectricityChoice.com will allow a company (or companies) to pick up thousands of customers in a single move with virtually no marketing costs.
That's why Chopra and Cohen think they'll be able to cut such a good deal with their eventual supplier. They'll make their money by taking a cut of the transaction.
Cohen, president and CEO of a Virginia-based public affairs and communication company, joined 18 months ago with Bill Kirkendale of MEDIAbase, an Internet company, figuring there was some way to make money with a Web site tied to the deregulation of the electric industry across the country. About the same time, Chopra, in Pittsburgh, was trying to figure a way to use the Web to give small residential customers a chance to save money on power the same way large industrial users do.
But when the Mars resident started checking out Web domain names, all the ones he wanted were taken by Cohen. So Chopra called Cohen, who coincidentally was a Pittsburgh native and a graduate of Peabody High School, class of '62.
The three joined forces and last week moved into office space on the North Shore that used to house a subsidiary of Duquesne Light Co.'s parent company. Wearing ties in spacious offices with a sweeping view of the Allegheny River and Downtown, they don't look like budding Web entrepreneurs, but they sure do talk like them.
"We want to evolve the marketplace," Chopra said.
Said Cohen: "The first couple pools are going to be very educational for everybody, which is fine, because the concept is sound."
He's not the only one who thinks so. Mercata is financed by billionaire Microsoft co-founder Paul Allen. Marc Andreessen of Netscape fame kicked in about $500,000 to Accompany and last month joined the year-old company's board of directors.
"Accompany is making group buying a reality on the Internet," Andreessen said in a statement. "It gives consumers access to the same values previously reserved for large companies. Aggregated buying is the absolute next wave in e-commerce."
And there are bargains to be found. Last week, Accompany buyers could have purchased a 3Com Palm V handheld electronic organizer for as little as $325. The lowest price for the same product among the 42 online shops monitored by Cnet is $347.95.
But people are still finding their way. A quick tour of the site showed that many items -- perhaps most -- from ice cream makers to golf clubs to Star Wars computer games to a boxed set of seven Stanley Kubrick movies on DVD video disk, had no buyers at all.
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