Free-riding is fun. Well, at least it can be fun for consumers.
Here's how it works. Say you go to the Good Guys (GGUY) to buy some video equipment. Not knowing precisely what you want, you ask the assistance of their knowledgeable sales people. They help you by offering solid advice. Since the Good Guys must pay for these salespeople, this will obviously be reflected in the price for the video equipment they helped you decide on. Knowing this, you go home and order it from Amazon.com (AMZN).
What you've done, of course, is to free-ride off the Good Guys' service. You got their service and maybe they gave you the opportunity to try out some equipment - something you can't do with an online retailer - and Amazon's lower price. What a deal!
Consumers can do this with lots of products, especially those that require a high amount of pre-sales service or the ability to touch or try out the product, like furniture or clothes.
FREE-RIDING HURTS SERVICE
Manufacturers and retailers have traditionally hated free-riding, for obvious reasons. Academic research indicates that over time free-riding will lower the incentives for sellers to maintain their service levels. It also attracts only the most price sensitive consumers.
Brick and mortar companies have traditionally tried to keep consumers from free-riding by using various devices, like territorial restrictions. The idea was to make it hard for customers to compare products and prices from different retail outlets. Of course, the proliferation of catalogs put pressure on this idea and the Internet has almost obliterated it completely.
Even with the Internet, consumers at brick and mortar stores, like the Good Guys, haven't really had the opportunity to free-ride as much as possible. The reason, I think, deals with convenience. If you're in the mood to buy something and you found it at a brick and mortar store, it's just not convenient to get back in your car and go home to buy it online.
So, until now free-riding has been somewhat kept in check, and brick and mortar sellers have had the incentive to maintain some reasonable level of service.
HERE COMES WIRELESS
We all know that wireless communication is expected to explode over the next few years. Some predict that as many as 1 billion cell phones and wireless devices could connect to the web in the next four years. While presently the content is somewhat limited to stock quotes, weather reports, and sports scores, some e-commerce players are already going wireless.
For example, online retailers like barnesandnoble.com (BNBN) and amazon.com are porting to wireless devices, as are comparison buying guides like Ecompare.com, and comparison shopping services like dealtime.com.
So even now a customer armed with an Internet ready wireless device can easily free-ride off the service provided by many brick and mortar stores, say for jewelry, hardware, and electronics by simultaneously using the store's service and taking advantage of auction sites, buying groups and online stores.
Think about it. You've just spent 20 minutes talking with a salesperson who has convinced you this is a great product. So you pick up your wireless device and check prices online. If the price is right, you buy online. So long retailer. The free-rider strikes again.
And if you're shopping for something that has a bar code on it, well Barpoint.com can help you free-ride by using their technology to do some quick comparison-shopping as well.
IT'S GETTING EASIER TO FREE-RIDE
And it's going to get easier to free-ride in the future.
Every comparison shopping service, reverse auction site (like Priceline.com or Respond.com), store guides (like Yahoo.com and Shopping.com), or buying groups (like Mercata.com and mobshop.com) - and there are tons of these - have incentives to configure their sites for wireless browsers.
If actively web browsing while shopping in a brick and mortar store seems a bit tawdry for you, well that may be solved as well. If some wireless pundits are right, you may not have to actively go looking for a comparison or a competitor's site. It may come to you.
Using GPS technology, messages may be sent to consumers based on who is using the service and where it's being used. The idea is that people can be precisely targeted by GPS technologies. So, say you have your cell phone turned on while your talking to salesperson about cookware at the Williams-Sonoma (WSM). You might then be sent a message of an auction going on right now on Ebay (EBAY) for cookware, or even a special deal in amazon.com's Kitchen's section.
"It's a bit of a marketer's wet dream," says Kyle Shannon of Agency.com (ACOM), as reported in the Industry Standard.
SOME FUTURE SCENARIOS
Play this out and I think you'll discover that free-riding may cause the following to happen. First, many brick and mortar companies that can't keep costs under control will either go out of business or lower their costs by severely lowering their current service levels.
Second, consumers may ultimately lose as well. Fewer service-oriented retailers may make it far more difficult to evaluate products that require pre-sales inspection and service. That, in turn, will hurt the manufacturer's of these products. Of course, manufacturers may react by providing more showrooms for these products - which could ultimately drive up their costs.
Finally, even the on-line companies may lose. With a focus placed squarely on price and an ever increasing number of firms competing on price, online profits will shrink as margins get smaller and smaller.
Free-riding used to good news for consumers. Unchecked as it will be when wireless really catches on, however, could mean a free fall for consumers, retailers, and online companies as well.
