Chris Barton: Why one online shopping club just might pull it off

It should be a match made in heaven - buying-clubs and the internet.

The idea is simple enough. Get a bunch of people, use their bulk-buying power to secure great deals, and use the low-cost internet to communicate and make transactions.

Why then have there been so many spectacular failures of this business model? The most notable in New Zealand is E-force. The timber company which remade itself as tech stock at the height of dotcom mania closed its cyber doors on December 11 with the sorry words " ... insufficient revenues are being generated from the portal activities to keep it on the air."

That's after it got more than 20,000 people together - each willing to part with $150 (30c a share) for the promise of great deals on consumer goods.

But it didn't work. In the six months to August last year, the company lost $2.9 million after losing $1.6 million a year earlier.

E-Force shares were worth about 3c yesterday. At their highest point last year, they were worth 48c. Another dotcom bites the dust.

But there's something else not right with this picture. The free internet providers, i4free, freenet and zfree have all gathered together huge potential buying groups - and stated they would use that buying power to derive revenue.

Two of them - i4free and freenet - aren't free any more.

That leaves Clear's zfree - claiming a closed-off and implausible 250,000 registrations - as the only free provider standing. But it too appears to be heading towards paid-for access.

I say this not because it's becoming more difficult to connect to zfree (which it is), but because the company has done little to encourage its subscribers to buy online.

The cynical would say that's because zfree interconnect revenue paid to Clear by Telecom has dried up with a new deal struck between the two last year. The pessimists would say trying to make money by taking a cut on online sales just doesn't wash.

So why then does Kerry Gordon, the former Mr Bartercard of New Zealand, believe he is going to do any better with his Go-Shopping?

To join this shopping club costs $24.95 a month - although that has been reduced to $14.95 during February and March. Expect some new membership deals in the next few weeks, including a new low-cost internet access account thrown in.

For their $14.95 a month, members - about 3700 have joined since the launch in November - get discounts on a range of goods including movie tickets, electrical goods and food.

Discounts are typically around 10 per cent. There's also a nifty print-your-own-discount voucher system, which can be used at a variety of restaurants.

So far Mr Gordon, who has invested around $2 million in the project, says sales through the site are at about $60,000 a month.

The numbers are hardly earth shattering, but it is early days and Mr Gordon is convinced that if he can get a buying group of about 30,000 members he can make it fly. With that sort of buying clout, he reckons he can go direct to manufacturers and retailers and secure some big bargains for his members.

Importantly, and perhaps one reason why Mr Gordon may succeed, the site does have the mechanism to deliver.

As well as a highly secure method for entering credit card and delivery details once and then never having to enter them again, the site also has a single shopping cart that lets users buy multiple goods from the multiple merchants - much like shopping in a mall, but with just one checkout.

Again, there's nothing particularly startling in this - you get a similar effect at sites such as Amazon.com - but the back end processing with the merchants is exceedingly complex.

In Go-Shopping's case, the behind the scenes smarts are provided by New Zealand company GFG and its Unicard system.

Interestingly, the product began life as a credit card management system for ASB Bank and was subsequently adopted by Unisys for worldwide distribution. GFG, which also sells Unicard, has done all the R&D, product enhancements, and most of the implementations using the Linc programming language - developed by Sir Gil Simpson's Aoraki crew before they moved on to Jade.

But what's most impressive is the potential of Unicard to deliver on the holy grail of internet shopping - authentication of the buyer. In a startling twist, the mechanism used to deliver this confirmation - that the remote shopper is who he or she claims to be - is not some complex digital signature, but the humble mobile phone.

A Unicard system showing how this works is up and running in the Philippines (click on Smart Money under Mobile Commerce).

Basically the phone is used as a callback device allowing the buyer to confirm - via either short message service (sms) or wireless application protocol (wap) - his or her purchase.

In response to a mobile phone text message, the buyer punches in a PIN (personal identification number) confirming the transaction and authorising which account to debit - just as they would at an Eftpos terminal.

The significance of this may be lost on some - but what it means is the ability to pay for goods directly from a debit, rather than credit, card - something that until now has been virtually impossible via the internet without some kind of swipe card reader attached to a PC.

Transferring the card reader and security function to the mobile phone also opens up the possibility of mobile phone commerce.

Next time the pizza delivery guy turns up and you suddenly realise there's no cash in the house - you'll simply use your mobile phone like an Eftpos terminal.

Mr Gordon has just secured the Australian and New Zealand rights for this Unicard service.

Perhaps this menage a trois - mobile phone, internet and buying club - is the new match made in heaven.

* Peter Sinclair is on leave.

* chris_barton@nzherald.co.nz

Links


E-Force

Go Shopping

Unicard

Amazon

Smart Money