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Leaders in a Brave New Field:
Innovative Course, Top Professors Anchor UT’s Prominence in Electronic Commerce
by Pam Bixby Losefsky
December 24, 1998. During a year-end review of online shopping on The News Hour with Jim Lehrer, a spokeswoman for a national retail association works hard to convince the host that Internet shopping is still a minor phenomenon. Most consumers are uncomfortable with it, she says. They have security fears. Americans still prefer malls, shops, and catalogs to the “World-Wide-Wait,” and in fact the jury is still out on this whole Internet shopping thing.
The interview switches to the grounds of the Texas State Capitol in Austin, where UT Business Professor Andrew Whinston makes a few points in favor of online shopping. Most people no longer have major security concerns, he says, thanks to encryption. In five short years, more consumers have taken to the web than was originally predicted. Far from being a minor part of retail, online shopping is already a major player, promising unprecedented efficiency and access to global markets. Whinston speaks coolly, calmly. He can afford to -- the future is on his side.
An Information Management professor at UT Austin, Andrew Whinston was pushing electronic commerce long before it was cool. Author and editor of four of the most popular books on Internet commerce, including Amazon.com’s best seller, Electronic Commerce: A Manager’s Guide (Addison-Wesley 1996), he is perhaps the leading academic light in this brave new field. Look into the subject and his name shows up everywhere -- in course descriptions at Harvard and MIT, on ads for Internet conferences, in Wall Street Journal articles, tech magazines, and popular websites.
When not writing, teaching, or consulting, Whinston directs the Center for Research in Electronic Commerce, a research enterprise housed at the Business School. A number of high profile, digital age companies sponsor the center, like Sun Microsystems, IBM, Dell, and Lucent Technologies. They seek association with UT, but perhaps just as importantly with Whinston. With his engaging ideas, his clear yet challenging prose, Whinston has become one of the Internet’s leading gurus.
The EDE: A Living Laboratory
He works out of a classically professorial office at the Business School, surrounded by overflowing stacks of papers and a surprisingly ancient-looking PC. Whinston saved the new PCs for his favorite student project, the Experimental Digital Economy (EDE), a living laboratory of Internet commerce.
In the EDE, graduate students form online companies that sell information to lower-level students -- information that the lower-level students need in order to complete coursework at UT and several participating universities (USC, George Mason, and Monterrey Tech). The information is bought and sold online with virtual cash, but the simulated economy has very real incentives – higher grades and genuine cash prizes awarded to the winning teams at the end of each semester.
Students in the EDE learn the ins and outs of Internet commerce first-hand. Professors get a living laboratory that mirrors the real Internet. “No other school in the country is doing this,” says Whinston. “From a research perspective, it lets us study an electronic commerce community. It’s a complete economy and we’re like God – we see everything.”
Some interesting lessons have emerged over the project’s first five semesters. According to Anitesh Barua, the UT professor who coordinates the EDE, sellers have learned the crucial importance of building trust with online customers. “Just like pure Internet start-ups,” says Barua, “the student-run companies have to sell to people they don’t know. They can’t show their products, because they are just paper, just electronic, but they still have to create credibility. They have to sway people.”
One way to build trust is to customize web pages for different customers, which the winning teams have done each of the last two semesters – and which another successful Internet site, Dell Computers, has been doing for several years. Consumers appreciate customization, says Barua, because personal attention is one of the scarcest commodities in an electronic environment.
Another winning approach emerged last spring when a team called “You’re Project Starts Here” dominated the market by offering one-hour turnarounds on all customer service calls, 24 hours a day, seven days a week. That was a tall order for a team of five MBAs, but it convinced customers that the team stood behind its work. “Your expectation in an electronic market changes,” notes Barua. People want immediate feedback: “On the Internet, if you can achieve a one-hour turnaround, your customers love you.”
Like real Internet companies, the EDE companies have to work hard to avoid negative interactions with consumers. “A few disgruntled customers can easily malign you in the market,” says Arjun Chopra, one of the student managers of “Your’re Project Starts Here.” The EDE has web forums where disgruntled customers can do just that, criticizing or complementing sellers as much as they like. Chopra’s team won praise from student-buyers and became the default site for most customers, much as Yahoo and Amazon have become virtual defaults for portal and shopping needs on the Web.
Chopra now works at Motive Communications in Austin, an Internet software company that has put his experience to good use. The most important lesson he learned from the EDE, he says, is that online companies have to offer comprehensive solutions to their customers’ needs. “Offering a piece-meal approach often fails since it leaves a fair amount of work to be done by the customers,” he says, “and the instant some competing company offers a comprehensive solution, your product is obsolete.”
Electronic Intermediaries
The EDE does not completely resemble the Internet – it’s smaller, and there is no great downside to failure, unlike the real Web where failed companies can lose millions. Students find that the market has great authenticity, however, since buyers and sellers share real needs and capitalistic desires, trading goods with intrinsic value to both parties. One student compared the course to an internship where you suddenly had “free reign over a company to make its strategic decisions – good and bad.”
The bad decisions can be just as instructive as the good ones. They include posting poorly edited ads, irritating customers with massive video files that take forever to download, and offering money-back guarantees that inadvertently became customer giveaways.
Even advertising has proven to be a possible quagmire, as it has on the Internet itself. Over the spring semester, professors Barua and Whinston are running experiments to test the efficacy of web advertising. The researchers contend that advertising is rarely the most efficient way to sway online customers and that many companies would be better advised to seek certification through online intermediaries.
What are online intermediaries? Barua explains the concept by describing his own experience buying a used car warranty over the web. He purchased the warranty from a web-based company he had never heard of before, Warranty Gold. “If I had surfed to their site on my own, no way, I would not have bought it, but I came to the warranty company through two trusted sources, Yahoo and Edmund’s,” the popular car site. Barua figured that these sources would not direct him to a bad company – why would they risk their credibility like that?
“For Internet products companies,” says Barua, “I think we’ll be able to show that ads are the wrong way to go to establish credibility – too long a ramp-up period, too expensive. Instead, go through an intermediary.” Often, Barua notes, customers will gladly pay more than the going rate for a product, if they trust the intermediary that sends them there.
International Attention
Whinston and Barua view the EDE as a perfect union of business and academics. The project combines teaching and research, while offering results of great relevance to e-commerce companies. “Companies are spending an enormous amount of money to get into e-commerce,” says Barua, but much of this money still goes to waste in unprofitable ventures. “If people pay attention, we can save them a lot of this failed money.”
While the research forges ahead at UT, the EDE has been attracting international attention -- from companies like Auc.net in Japan and the Korean LG semiconductor group, and from researchers all over the globe who would like to replicate the EDE at their own universities. Whinston and Barua believe that the program is the best model for e-commerce research in the future.
In the near term, it has been the only model, since reliable information from online companies is so hard to come by. When Barua, Whinston, and former UT colleague Ram Chappalla (now a professor at USC) first set up the EDE three years ago, they looked for information on successful Internet companies but could find very little. “The nature of the game,” Barua told the Austin American Statesman, “is that it’s so new, these companies won’t give out details about their operations.” Once again, Andrew Whinston and his UT colleagues are on the frontiers of e-commerce. Through the EDE, Texas business students have a great opportunity to profit from their advance work as pioneers.
For more information contact: Anitesh Barua, Texas Business School, 512-471-7895; Andrew Whinston, 512-471-8879; or visit the Center for Research in Electronic Commerce.
For information on specific programs at the McCombs School, consult our contacts page. For media information, contact the Communications Director by phone at 512-471-3314 or by email at CommunicationsDirector@mccombs.utexas.edu.
