Friday, June 05, 1998

E-Commerce for the Masses
by Bob Williams ([email protected])

Fooldom has been full of discussions lately regarding the merits and pitfalls of e-commerce. Most of the discussion has been focused on large-scale applications in the brokerage industry, book retailing, music retailing, etc. But e-commerce is already going well beyond large-scale corporate applications.

My wife and I recently bought a vacation home near a resort in Florida that we intend to rent to people who don’t want to shell out top dollar to stay on the grounds of the resort. Fools are already thinking, "Wait a minute. Real estate is a lousy investment. It’s illiquid, requires lots of hands-on management, and the returns are inferior to the long-term performance of the market!"

True on all counts! We are well aware of the characteristics of real estate as an investment. Not to worry, though; we really are Foolish investors.

We have been following Foolish principles for a little over two years and are doing just fine. We use the Unemotional Value strategy (now known as the Foolish Four) for 40% of our funds, the Unemotional Growth strategy with another 40%, and we use the remaining 20% for two or three stocks of our own choosing. We’ve outperformed the market handily with this combination. But two years is a short time, so we’re not overly excited. We intend to stay invested with this strategy for the next 25-30 years. Using very conservative assumptions regarding investment returns and additional savings, we are solidly on track to fund our children’s college education and a comfortable retirement.

So why the real-estate investment and what does it have to do with e-commerce? Basically, we bought the house in Florida with money that we can afford to lose. Not that we want to or expect to, but we don’t view it as a part of our long-term investment strategy. We view managing the property as a hobby. We think we will enjoy the process and we like the idea of being able to escape to a warm climate with friends and family during the winter.

After purchasing the house in early May, we started the process of attempting to attract renters. We did two things. We placed an ad on a vacation rental site on the internet. The ad includes a thorough description of the home with a photo. It will run for one year at a cost of about $100. We also placed classified ads in the "Vacation Rentals" section of four suburban newspapers near our home in a major metropolitan market in the mid-west. We carefully selected newspapers in communities that have lots of families with kids -- people most likely to be interested in our vacation property. The brief ads (no picture) appeared for one weekend at a cost of just under $200.

Which advertising vehicle do you think was most productive? We didn’t get a single inquiry from our $200 worth of targeted newspaper ads. Not one. But our ad on the internet has generated a considerable number of inquiries, five of them on the same weekend the print ads appeared.

I guess I shouldn’t be surprised at the results. The internet ad has the potential to reach millions of people around the world (we already have one rental from a family in Switzerland) compared to hundreds of thousands in our local market. The delivery cost is obviously wildly different, too. The internet ad was about half the cost of the print ads, despite the fact that it’s much more descriptive and it has a shelf life of one year rather than just one weekend.

I think the implications of our experience are wide ranging and significant. First of all, the internet has allowed my wife and I to contact people around the globe and transact business with them. "Micro-level" e-commerce, if you will. But it has also spawned a very viable business in the form of the internet vacation rental site that we are using for advertising purposes. Part of their revenue model is dependent on the fees people like us pay to advertise vacation properties on the site. Sort of a "mid-level" e-commerce. As the site matures, I would expect it to attract advertising from large corporations interested in selling products to vacationers -- "macro-level" e-commerce. I haven’t seen any such ads yet, but I suspect it’s only a matter of time for this to become part of the revenue model as well.

I could go on and on about other aspects of how the internet has directly influenced our ownership of the vacation property: we first discovered the home for sale on-line, we applied for the mortgage on-line, we bought our plane tickets for our first visit on-line, etc., etc. But the point is that e-commerce is viable; it works for both large-scale and small-scale applications. It’s here to stay, and it’s only going to get bigger.

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