Wednesday, February 20, 2019

How Internet Retail Works

I keep saying I am going to write this blog post as a way to dispel the most common misperceptions out there about how companies run their businesses on the internet.  I would say that I answer easily more questions related to this from customers and students than any question regarding embroidery.  So this will form a faster response.
The most often asked questions are:
1) can you add something to my order...
2) can you change the date of my subscription...
3) I forgot my password to X
4) My password doesn't work in X
5) I don't like using the internet - can you just charge my card, the last one I used on your shop?
6) Please use a different email address for my post office notices
Industrial designers know that  you need a 'mental model' to hang your product on when designing a new product.  If you don't provide one, the user will revert to what they know and assume that the product works that way.  Big mistake by the seller and the consumer.  Internet retail has been a MASSIVE mental model mistake by the companies that provide services to businesses.  They never put up how their service works on their sites because they ASSUME that you get it.  That is because the services were originally developed by 20-something computer hipsters for their friends, never ever envisioning that it would take off like wildfire and that everyone's grandma and grandpa would be buying and selling on the internet and would need some more explanation to override their old bricks-and-mortar and paper catalog model.

So most of my customers aren't the 20-something hipster computer science nerds (surprised?).  I have spoken on the phone so many times to customer service at internet companies, begging them to put together a 'how it works' page so I can refer people to it.  No go.  They don't get it.

Why There Are 3rd Party Providers on the Internet - The Change from Internet 2.0 to 3.0

The internet could be the wild west of retail - any snake oil salesman putting up fake products, getting your address and credit card number and going to town selling that number to every scam artist and identity thief out there, racking up tons of charges before you even realize that the product isn't coming in the mail.

As the internet was developing, it was obvious to retailers it would be a way to reach customers.  The big guys - big catalog places like Land's End - treated it like a branch of their print catalogs and hired tons of computer scientist to build early custom sites for them to emulate their mailing catalog and allow you to enter your payment info.  This was highly successful and those companies have hundreds of IT professionals running their websites.

Then there were internet-only businesses that popped up.  The most visible one is Amazon.  They built their entire business around their concept of internet retail and are mostly a computer science company.

That left the businesses who were niche and small realizing that the internet might be the way to reach a small audience that is distributed around the world.  Companies that feed hobby interests are definitely those types of businesses.  They needed a way to reach their audiences to stay alive as brick and mortar was becoming more expensive.  But there was no way to build a website other than to hire a web designer or a small programming group to do it for you if you didn't know how to code.  There were some rudimentary shopping carts using databases that were developed that you could buy the code for.  Doing this cost about $50,000-$100,000 for a custom website and well, looked pretty bad when we revisit them today.  But outlaying that kind of money is a huge stretch for a little needlework shop.  So most didn't do it (and often went out of business in the next 10 years).  Those who did couldn't update often because they were still trying to get the value out of the first build.  Their sites would return to them the order and the credit card info of the customer and they would then process it on their in store processing system (a box in the store).  This had repercussions.  Bad guys realized that there were hundreds of thousands of these systems out there and in Internet 2.0 days, they could write small hacking programs to roam the internet and steal the credit card info when you purchased.

There was obviously a need for Internet 3.0 - a safe way to purchase online.

Internet 3.0 - The rise of Elon Musk

Most people don't know that Elon Musk was the founder of Paypal.  That was his first 'disruptive business'.  He realized that there was an enormous market for retail on the internet, yet unless you were Lands' End or Amazon, you couldn't afford to build the internet banking/encrypted interface.  So he decided to build it.  The other thing he realized was that to have a thriving internet retail business, the customers would need to have faith in the system.  That they would get what they bought and that their financial and personal information wouldn't be stolen.  One of the best ways to do that was to prevent the small retailers from getting that information in the first place.  That is the biggest failure of the mental model for my customers - they think I see their credit card.  Never do.

Paypal is a bank that processes financial transactions on the internet.  It is PERMISSIONS only.  That means that the seller puts out a link spelling out exactly the financial transaction the customer is giving permission for.  The link contains the item, the item cost, and shipping cost and where it is going.  The customer then gives permission for the 3rd party - Paypal - to collect those fund and ONLY those funds from the customer's bank or credit card.  Paypal then takes a fee from the funds and sends the rest to the seller.  Paypal retains the seller's bank information and a permission from them so they can remove the funds back from the seller if there is a dispute from the customer, protecting Paypal and the customer from snake oil salesmen.

So PayPal acts as a 1-stop locked wallet that the customer can use to process transactions with hundreds of sellers and only one company, Paypal, has the actual numbers to their credit card.  No one can access or charge the card without the direct permission of the customer for specific terms.  It also offers a dispute means for the customer, much like calling your credit card to dispute a charge.  But since the customer did actively authorize the charge, they are dealing as an arbiter between the seller and customer over the damage or non-shipment of a product.

In the case of subscriptions, the link contains the product or service, the amount of the installment payment, the date the payment will be taken and how many of the installments there will be.  The seller gives that link to the customer and the customer authorizes PayPal to act upon it only to the terms laid out.  There can be no changes at all to the terms.  The only change allowed is cancelation of the remaining payments by either the customer or seller.  If PayPal tries to act upon the installment payment and for some reason the customer's credit card or bank is unable to process, the subscription is 'suspended'.  But that is a misnomer - it is actually canceled as the seller has no way to restart it.  The two parties (customer and seller) have to act upon a new link with new terms to continue the payment plan.

Based on the financial model of Paypal, several companies pop-ed up to more completely service the small business retail industry.  Gone are the days where you need to hire a computer scientist to custom code a shop site for you.  You buy the services of a place like Shopify which provides the templates of typical shopping site pages, a database that you load your product text, prices, and pictures into, and an internet banking platform to process the credit card payments in a permissions only scheme like PayPal.  The retailer NEVER gets your financial info and we can't go back and make changes other than refunds.  They even will allow you to use PayPal as your payment method.  They charge the small company a yearly fee to have the pages up on their servers (that the small company has modified using their online interface), a transaction fee for processing each financial charge and then lots of addition fees monthly for other wiz-bang features.  One in particular that confuses my customers is the use of blue links in the text of the product for monthly subscriptions.  Those links take you directly to PayPal to set up a monthly subscription.  There is a module in Shopify that would allow me to make it part of the drop down menu.  But I would pay $40 a month to have it there and then also pay Shopify a 3.0 percentage for the transaction or PayPal a 2.5 percentage for the transaction.  So by passing it with the links embedded in the text saves me $40/month per class that I don't have to pass on to the customers in pricing.

So one complaint I hear all the time is 'I hate PayPal'.  I can understand that and it is often due to a variety of issues including confusing customer service (remember that you are talking to someone who understands the internet and you might be working off the mental model that I just crushed above - you are talking two different languages).  There is a mistaken perception that data can be easily stolen.  But remember that their entire business is built around encryption and not passing information onto the sellers.  But the one thing they can't control is your own computer, the spyware software that you clicked on yesterday that is passing on your keystrokes, and your use of super easy to break passwords on the multiple sites over and over so you don't need to remember them.  That is usually the way the data is stolen - the fraud walks in the front door with your password.

So I often get non-encrypted emails from people saying (1) they don't use PayPal because it isn't secure and so (2) here is their credit card number with the security code, their address, and in several cases - oh my god - I was handed a social security number.  My head explodes at that point and without reading the email I trash it and wipe my trash out immediately to try to help protect the person.  Email is not secure EVER for a credit card or social security number.  NEVER.  And now, since there is internet banking to be used, all insurance companies are pushing data breach policies on small companies to protect us from lawsuits over not protecting customers personal data.  So it is in my interest to never collect or store your financial information.  So I don't.  That means that while I could contract with VISA/Mastercard to directly take credit cards, I don't.  One reason is that the fee is huge because it would be only a few a year.  You would call me in the middle of the night from a foreign country to give it to me.  Then I would need to take a thousands of dollar policy on data security.  And I am pretty sure I can't even get decent terms on that because I use my laptop to do business and it goes everywhere with me, my business is in my home and I run a robot team in the house with 22 teens in a pretty fluid open door house.  So using a 'latest encryption' internet banking provider makes a ton of sense for both the customer and me, the seller.

More Services - Internet 3.0

Well Internet 3.0 with all its banking services and now its companies with templates to build your shop site integrated with internet banking is Fabulous.   You can make websites that look like your one person company is the work of 100 people.  That is good and bad.  The good of it is you look professional and it is easier than ever for the customer to understand your products and purchase them.

The bad list goes on and on.  First, the customer assumes you are Amazon and that as soon as they hit buy on a Saturday night from Austrailia your 24-hour warehouse got jolted into action and the robots are pulling the shelves into the picking bay and the boxes are filled and in an hour the box is off via UPS or USPS.

All the internet companies like Shopify assume that you might be at least larger than one person who needs to take vacation, have sick days or be out of town on other business, etc.  So they don't enable a means to change the emails that go back to the consumer to say 'hi, out of town for a few days'.  So, well, that causes problems when the customer doesn't get a response while you are sleeping to their email that they 'forgot something and need you to charge their card for it' and gets pretty annoyed by it.

The other thing that is a big problem for businesses like mine is the lack of flexible integration of functions.  Right now all the 3rd party companies assume that your business is straight retail and that is their business model to service.  But my business is a mix of retail AND teaching content that needs video, downloadable pages, blogging, email marketing for retail, email to small lists of students in a particular class, and a Q&A means.  There is no platform for all that under one interface.  So, as you see in the graphic, it is a patchwork of platforms.  I make it work - BUT because it is using so many companies - each one has their own database system controlling the personal information of the people using it.  That means that I have no control over user names and passwords and never know them in the first place.  So I can't answer these questions nor can I uniformly assign the same set across the platforms to make it easier on you!

In Internet 3.0 a complicated business needs to use many providers of services to do all the functions of the business.  This means that I can't provide uniformity across the business of email addresses, user names, passwords, and mailing addresses as each has their own privacy settings and databases for that information - some of which I can and can't access.  So mistakes of old emails, lost passwords and new addresses being missed abound at times!

To run the business I have no less than seven databases that information is stored in.  That is also complicated by some little hick-ups of internet banking.  You can't have more than one internet banking account per actual bank account number.  So the vast majority of you have allowed your husband to set that up and so I get your order information for classes in your husbands name and email.  But you want the emails to go to you, not surprisingly.  And some families share only one email address - and husbands often get annoyed with their wives buying supplies or getting so many class emails.  So guess what - they mark me as spam or unsubscribe from the email mailings - something I can't undo because of spam policies by Constant Contact.  And tons of you live now in two homes - sometimes across countries in some extreme snow-birding.  There aren't systems to take care of these things yet.  And to make it even more complicated - there are actually several pairs of name doppelgängers out there who love historic embroidery.  What I mean is that there are ladies with the same name but live in different cities.  Yes - blows the mind and causes a bit of confusion when the web guy is assigning passwords for a new class.

So this is what we are all living with for this complicated teaching/retail business in Internet 3.0.  I wonder if Internet 4.0 will ever come along with ways to integrate more of these things under one interface.  I am not sure it will.  But one can only hope!

I hope that cleared up a bit of the internet for you and why you get so exasperated by my apparent incompetence over your passwords or updates to your email addresses and why I can't 'just add that to your order' like people used to...