Coping with a swirl of choices

Next time someone disses the New Economy, take them to the local supermarket.

Point out the eye-popping variety of food: the multitude of specialty coffees, the array of condiments. (Americans buy more than 800 varieties of mustard alone.)

Then suggest that all those bar codes and scanners, electronic cash registers and inventory-control systems, have given consumers more of one thing than they've ever had before:

Choice.

The New Economy is creating a golden age of consumer discretion. Americans can get products cheaper and more customized than in the past. And they're getting these things not from a flurry of dotcoms, but from old-line merchants and manufacturers that are reengineering themselves to take advantage of the new information technology.

These forces will give rise to new gadgets and services, of course. More important, they're pushing the consumer into unfamiliar territory.

The New Economy consumer will have more power, will be interacted with rather than sold to. The smorgasbord of options threatens to overwhelm her, but transactions will be streamlined. And service – whether it's using a cellphone or buying a house – will be, well, queen.

"The New Economy is really about this transition from hardware to software," says Regis McKenna, author of five books on technology and marketing. "Local retailers, they are connecting those [store] shelves to suppliers and the suppliers to the cash register. That automation is what allows us to go to the grocery store and have almost an infinite choice of products."

Small wonder: The average supermarket carries more than three times the number of products it did in 1980.

And it's not just grocers. Retailers like Wal-Mart, and manufacturers such as the Big Three automakers (which banded together two years ago to form an online supplier exchange) have retooled themselves to streamline operations, cut costs, and offer more variety. Even niche companies are making the transition.

"We sell bikes the same way Dell sells computers," says Jamie Raddin, president and founder of Airborne Cycles, a maker of high-end titanium bicycles in Springboro, Ohio.

Customers who visit Airborne's website (www.airborne.net) can pick a frame, choose from a variety of handlebars, front forks, pedals, and so on until they've designed their dream bike.

The computer keeps track of the bike's weight and its cost (average price: $2,500). Then the order gets built and shipped and received by the customer within seven business days.

But selling online only reaches a narrow audience. So two years ago, the company began selling its bikes through a network of traditional dealers, who use a parallel online ordering system. Customers end up paying the same price as if they'd gone online, but the dealer gets a cut of the profit.

That second piece – working with existing dealers – is what many of the dotcoms forgot. By concentrating on online consumer transactions, many start-ups missed much bigger opportunities in the less visible business-to-business arena. The result: the fall of the dotcom and the steady rise of established players in the online world.

"The entrepreneurial start-up model ... was the wrong model," says Rob Atkinson, director of the new economy project at the Progressive Policy Institute, a think tank affiliated with the centrist Democratic Leadership Council in Washington, D.C.

In the more likely scenario, "it would be Ford Motor Company selling you a car directly, not CarsDirect.com," he adds. Existing banks are likely to gain customers by offering free electronic checking, making business increasingly difficult for online companies like CheckFree.

This reengineering of existing companies takes time, even in the best of circumstances. Throw in bureaucratic resistance and the prospects of slimmer profits for some players, and industry transformation can slow to a crawl.

Take real estate. Mr. Atkinson is studying how the industry could halve the transaction costs for buyers and sellers. For example, buyers who search online first typically spend one-third the time with a real estate agent that non-Internet buyers do, he says.

That's one reason eRealty.com offers buyers a 1 percent rebate when they use one of its agents. (Sellers also get a break.) But more can be done to shave costs, Atkinson insists.

For example, if property records were available online, title searches could be done quickly by computer and title-insurance costs would be slashed. Home buyers would like that. But the title companies, which make their money searching paper records and issuing insurance policies, understandably aren't too keen on the idea. So change is slow.

Every business could use a little Internet spark, even the coffin industry. Online casket companies offer their wares for 40 percent to 60 percent less than traditional mortuaries charge.

But the latter are fighting back. In some states, they've gotten laws passed that keep online outfits from setting up stores (although they can still sell online). Many mortuaries effectively have frozen out the online supplier by offering rebates to families who choose to buy a casket from them.

Industry resistance "is as strong as ever," says Kevin Gray, president of Direct Casket Inc., based in New York and California. So he's taking a new tack: cut-rate funeral services that offer similar savings to his caskets.

Over time, of course, such obstacles will likely fall to competition, new industry standards, or government action. And consumers will reap the benefits. In fact, their position in the economy is already changing and becoming more powerful.

"The consumer is now a coproducer," Atkinson says. For example: An individual booking an airline flight online is really doing what a reservation agent used to do. Since the airline no longer pays a salary or commission for someone to do that work, it can pass on some of that savings to the consumer in the form of a discounted fare.

Expect more such online discounts as retailers expand consumer choice. Of course, too much choice has its drawbacks. "You are so overwhelmed with choice, you become a consumer surfer," warns Mr. McKenna. Add the tidal wave of unsolicited e-mail (known as spam) to the already high level of junk mail, TV ads, billboards, and so on and the effect can be crushing.

"There's a constant barrage of messages trying to get your attention and convince you of something," McKenna says. By one estimate, the average individual is exposed to 8,000 to 10,000 commercial messages a day.

Call it New Economy smog – one of the unintended consequences of the revolution now taking place on a store shelf near you.

• This is the second installment in an occasional series. Part 1 ran Sept. 9.