Four Percent

RX mortar and pestleA new study by the Pew Internet and American Life Project revealed that "only" four percent of Americans have used the Internet to buy prescription drugs — and even fewer do so through foreign pharmacies. Given that most of the solicitations to buy drugs online are spam and that the U.S. Food and Drug Administration has said it cannot guarantee the safety of drugs sold through foreign pharmacies, it is not surprising that there are relatively few people who have bought drugs online. I am actually surprised it is as high as four percent. What is surprising to me about the study results is that WQXR (classical music station of the New York Times) reported that "Americans do not trust the Internet" and then described the study results above as justification. (Editorial comment about the The New York Times’ editorial comment: The Times can find bad news in just about anything. They seem to report a lot more bad news than good news).
The good news with regard to people buying on the Internet is that the numbers continue strong double digit growth. The commerce department reported that retail e-commerce sales in the second quarter of 2004 were $15.7 billion, up 23.1% from the second quarter of 2003. Total retail sales for the second quarter of 2004 were estimated at $919 billion, an increase of 7.8 percent from the same period a year ago. Even though the e-commerce sales are still less than 2% of total sales, the faster growth rate will insure that on-line sales will become a bigger and bigger share of the pie.
Why aren’t e-commerce sales 20% of the pie by now instead of 2% ? There are many reasons — most of them not technology related. The number of people with "always on" Internet connections is a factor. Ease of use and concerns about security, identity theft, and privacy also contribute. I am optimistic that these issues will be adequately addressed. As eBay and Amazon continue to grow and show real profits to the world, business leaders are paying more attention. The free markets will drive competition and then innovation will kick into high gear. We have barely scratched the surface of what is possible.
Why do people drive to Walmart and other retailers to buy things instead of buying it online? There are various reasons including social factors, habit, and a desire to touch and smell things. There are some things that we buy that don’t really need much touching or smelling though and I believe we will see the emergence of "fulfillment models" for them. Just as the online bridal registry has provided an alternative to the old way, so too will e-businesses that offer to fulfill your staple needs. If you were to analyze the grocery bags that you bring in from the car, how many items really needed discernment and how many were blindly grabbed from the shelves?
Paper towels, toilet paper, salt, flour, ketchup, potato chips, coffee, etc. are staple items. Webster says staple means "a commodity for which the demand is constant". When you think about it, there are a lot of things in that category for many people. So if the staple items just "showed up" outside the door from UPS, we could save a lot of shopping time which we could then use to shop for things that require more time. At some point e-businesses will begin to offer fulfillment services and as we place things under that model, they will get to know the pattern and based on shipping costs, they will begin to suggest quantities of things that will save us money in addition to time. This kind of thing won’t be for everything nor for everybody but it will be one of the new models that will emerge that will cause the 2% to grow.
The other model that is already beginning to contribute to on-line sales is "order online and pick up locally". Every needed a nut, bolt, gasket, fastener, or doodad on a Saturday afternoon and then spend the afternoon driving around from store to store trying to find it? I have. Wouldn’t it be nice to go to Radio Shack, True Value, or Pep Boys online and buy it and then print out the receipt along with a map to the nearest store that is open and has it in stock? Amazon and other retailers are offering TV and other consumer electronic products for order online and pickup at Circuit City. See "Local Fulfillment" for other examples.
The glass is half full, not half empty. In the days ahead we will see many new capabilities on the Web and they will save us time — our most valuable but scarce asset.
Epilogue: Of the 4 percent of Americans who bought online, the vast majority went to pharmacies based in the United States. They reported that the sites they bought from required a prescription and they said they had one from their doctor. An AP story reported seventy-five percent of the online drug buyers say their most recent purchase was for a chronic medical condition, such as arthritis or high blood pressure, and most said they were satisfied and planned to order online again. According to the story, most cited convenience and cost savings as reasons for buying online.