Traditional bricks n' mortar companies will get nowhere in the new economy unless they start out by spinning off their Internet business, a veteran of the online business world has warned.
Terry Jones, president and chief executive officer of online travel giant Travelocity.com, said during a visit to Australia last week that bricks n' mortar companies had to realise their traditional company structures would continue to be a significant handicap throughout their initial efforts to compete online.
"[Traditional companies] are competing against people who eat stock options for breakfast. They're not going to succeed with a typical corporate committee perspective," Jones warned, adding that once the new business had made an impact, companies should consider reintegrating the dotcom into the rest of the business.
Jones was in Australia to consider future partnering arrangements aimed at making Travelocity.com a substantial regional travel supplier, content provider and portal.
Spinning off its Internet-business into a separate dotcom has clearly worked well for The Sabre Group, which founded Travelocity.com in March 1996 on the back of 10 years of success in delivering online travel services via AOL and CompuServe.
Sabre put the new venture into a separate building with a new culture, a different operating team and a separate budget, with Jones reporting directly to Sabre's CEO - initiatives which, Jones said, were all vital to its current success.
Since then Travelocity.com has registered more than 17 million members. It has revenues of almost $US91 million and as at the end of 1999 it had sold $US1.2 billion worth of travel on the Web.
Jones conceded life is much harder for start-ups these days because the field is much more crowded; it's harder to have a unique idea, more expensive to partner with portals and much more difficult to deal with the financial markets, which are more selective than they were earlier on.
"On the other hand, if people still have a great idea that's new and different and really changes the way people shop and buy and provides a new level of convenience, they can still change the world," Jones said.
He said to succeed, brick n' mortar companies had to look at the world with open eyes and understand and build on their strengths, including their branch office networks, while figuring out how to be fast and nimble and inexpensive.
"Those are hard things to do, so I think the bricks n' mortar guys come with some strengths and some weaknesses, and there aren't many examples out there yet of bricks n' mortar guys who get it."
Jones said when Sabre decided to take its online reservation service to the Web, just then starting to be commercialised, it accepted the risk because it already had part of the required technological base.
What it didn't have was much of the expertise it needed to get its online business up and running. Jones said while Sabre already had strengths in running large transaction engines, the new company had to learn how to write rock-solid, scalable Unix code "particularly because we didn't have the historical background of steady growth and predictable models that you have generally in the mainframe world".
It built a strong crew of C+, C++ and TCL programmers and actively recruited people with database marketing skills.
"The Web is really a direct marketing medium, so building that skill base has been important to us," Jones said.
All up, getting the business running on the Web has required a substantial financial investment, particularly in marketing and customer services, closely followed by IT, Jones said. The company has just gone public in order to continue to finance its development.
"I think there are two things that have made us successful," Jones said. "One, we focused a lot on technological innovation. We consider our competitor in the business to be the telephone, [used by] people who do things the old way.
"So we've tried to give the consumer value from things they couldn't do in the old' world [like] we page people when their flight is late, or we send them an e-mail when the route that they're watching goes on sale, so that they can come in and book before it's gone."
Travelocity.com has also focused hard on customer service. Jones said many consumers who were happy to book over the Web still needed to know there was a human being available to call if they wanted to. And finally, it has put a lot of resources into developing its database marketing skills.
"That's because more and more we look at ourselves as an online marketer, that can really provide targeted advertising and marketing for our suppliers," Jones said. "With 6.6 million visitors a month, we're several times larger than the biggest travel magazine, and we can provide to an advertiser someone who is absolutely going to Sydney next week; a magazine can't do that."