A Case Study by Elaine Morris Palmer as seen in Digitrends Quarterly Review, 1998

On January 28 of this year, Egghead made the announcement and a month later, on February 28, the last 80 of Egghead Computer’s total 250 “brick-and-mortar” retail stores was, in fact, closed.  Starting in March, with the exception a little residual 1-800 business and a portion of the old Surplus Direct catalog business, Egghead became solely an Internet commerce company. The newly named Egghead.com operates three web sites [www.egghead.com, http://www.surplusdirect.com/ and http://www.surplusauction.com/%5D that cover the entire life cycle of computer-related merchandise from the newest products coming onto the market to liquidated and refurbished goods. Hours of operation: 24 hours a day, 7 days a week.

In a typical 2,500 – 5,000 sq. ft. brick-and-mortar store, Egghead Computers offered up to 4,000 products. On the Web, Egghead.com currently offers close to 50,000 and hopes, by year end, to offer close to 100,000 individual product SKU’s. John Hough, Director of Corporate Communications, describes Egghead.com’s overall competition as every reseller of computer products and related merchandise from Cyberian Outpost to Wal-Mart.

First quarter operations of the Egghead.com website experienced 300,000 visitors. By the third quarter, that number had reached 6 million[1].What Egghead discovered is that the Internet appeared to be everything the financial analysts said it was. Egghead.com’s experience had been extraordinary. The company made a choice to focus the resources and priorities of its management and its financial capital on developing a pre-eminent position in Internet commerce.

With the recognition that the old store format just wasn’t working the way it had in the early days of computer hardware and software sales, Egghead began the process of creating a new store format. Simultaneously, the company started a website and acquired another company, Surplus Direct, and its web sites: surplusdirect.com and surplusauction.com.

“It wasn’t a decision to turn off all the stores, then start from scratch” recounted Hough. “We already had three web sites that were experiencing substantial growth.” There were dissenters — some managers who were unhappy to see those stores close. But Egghead saw that every aspect of its business could be more efficient in the virtual world — less costly than the physical world. Egghead.com’s superstore in cyberspace offers a larger total number of products available with much less inventory on hand; sophisticated technology at the hands of fewer people; capital facilities nowhere near brick-and-mortar. Less total investment overall.

“We have reinvented the company,” continues Hough. “We have a very sophisticated market strategy…It was a risk, but it wasn’t an extraordinary risk. It was consistent with good business practices.”

Egghead could start with a fortified foundation: brand equity, name recognition, established and strong vendor relationships, a presence on the Web, lists of 5 million customers who had purchased at least one Egghead product in the previous 24 months, an early adopter demographic base, and about $60 million in cash on the balance sheets.

Initial stages required significant investment to grow and establish Egghead.com as an online leader. Growth, plus the company’s capacity to provide a superlative level of customer service were the first measures of success. Hough clarifies, “If we do this right, the investment made in the acquisition of new customers becomes, in fact, the acquisition of repeat customers.”

According to Tom Collins, Egghead’s Chief Technical Officer, efficiency of operation in the virtual world is critical, but most importantly, the customer service element is central to succeed over time. “There are no secrets [on the Internet],” cautions Hough, “If someone’s unhappy with us they can email the chairman of the company or the director of marketing or literally tell the online world that your business stinks.”

To warrant service that’s strong and dependable, Egghead.com employs The Palace Server Software [www.onlive.com]. This method of introducing multimedia to text chat added customer interaction like a real store allowing customers to ask a question or resolve problem at any point during a transaction. An active and immersive environment, Egghead.com is staffed by “Sales Egg” avatars (visual representation of yourself or someone else in an online environment) who initiate conversation with a visitor in the environment and “push” product to that customer right there.

Now, there is the added step of downloading the Palace Software to avail yourself of a Sales Egg. It’s prototypical at this time, but soon, Mark Jeffrey, one of Palace Software’s developers, hopes to add the advantage of instant access to the live environment and a clickable online helping hand in every screen shot.

For a basic cost of $10,000 “Palace Presents” Server Software enables the marketer to create his own online store where he can “float” windows on a page, have a customer service button, entertain large-group-moderation special events, cue incoming questions from up to 100 concurrent visitors, push web pages to his audience and have access to a live environment with the use of just a browser. All you need is a host or, for a few hundred dollars per month, The Palace will work with your ISP to host your site. Fear of avatars? The Palace provides text-only interactive environments too.

In Egghead’s Palace, the graphical identity of the site is key.  It is imprinted with the Egghead brand and its various rooms, according to Jeffrey, provides a “cool place to hang out…eventually you’re going to buy something.”

Sales Eggs trained in customer interaction and support offer real-world problem solving in real time reducing the risk to customers who may fear feeling lost in the virtual world. Helping the customer through the buying decisions is integral to the next generation of commerce-enabled sites according to Collins, “It’s all an effort to meet the customer at the door,” he explains. “If you don’t have something along those lines…at the end of 18 months, you’re going to be behind the times.”

Right now, each Sales Egg can field about 50 concurrent customers. Something that could never happen in a real-store environment. Collins suggested that keeping the customer coming back, making him happy and making the experience easy, fun and safe is going to take retail know-how. “Our management team hasn’t changed from what we had in the stores and we’re still focused on the customer.”

In the company’s fourth quarter, ending March, 1998, the company’s three web sites, in the aggregate, had more than 14 million site visits[2]. Industry prognosticators project that Egghead.com’s revenues will reach the $100 million mark by the end of their first year of operation in March of 1999. When asked about the decision to go online,  the company’s chairman and chief executive officer George Orban, will say unabashedly “I am absolutely certain that we made the right decision.”

The company does plan to seriously explore going beyond the Internet to migrate as many of its former customers as possible. To further that movement, development of the Egghead.com’s new “strategic communications program” will integrate online and offline efforts. Egghead sees its prospective agency as a true collaborator in development of its national advertising plan. That is, to determine what’s best for the company together and then attach a dollar number to it.

“The competition will be fierce and there are many chapters in Internet commerce to be played out that will require innovation and some adroit management of spontaneity.” Hough continues, “There will some surprises, some mistakes. It’s a very dynamic and interesting space to be in today.”

With that, I left John Hough as he and Egghead’s management team were about to begin the grueling two day process of choosing that agency of record by July 1 to inaugurate their new plan.