Tech Industry

IBM's online mall latest to go

Big Blue's plans to close online mall World Avenue raise questions about the future of retail e-commerce.

IBM's (IBM) decision to close its online shopping mall, World Avenue, has again raised questions about how to sell retail products online.

World Avenue was launched last August with much fanfare but apparently drew too little traffic for the 16 companies that had rented out virtual storefronts in the mall. It will close July 9, according to IBM spokeswoman Trink Guarino. "Customers didn't want IBM's brand front-and-center, but their own brand," said Guarino.

While each company ran its own storefront independently, the entire mall was identified chiefly with IBM, and the merchants felt this undermined their own brand identity. Tenants, including department stores Gottschalks and Canada's Hudson Bay Stores, didn't want IBM as an intermediary.

This is not just a problem with World Avenue but with all of the Web malls that have sprung up, said Emily Green, online retailing analyst with Forrester Research. "Brand is extremely valuable in creating consumer interest and demand. An online mall is not exploiting a brand and not drawing [the consumer] because of its own brand, so it's not offering additional service."

Green suggests that online malls may be a retail technique that just doesn't translate to the Web. There are other examples besides World Avenue. The internetMCI mall, which helped pioneer this approach to retail e-commerce, launched two years ago. It has also been abandoned.

Big Blue said it will now concentrate on selling its e-commerce software, Net.Commerce, and helping customers set up standalone online stores. Selling many copies of Net.Commerce was of course IBM's goal all along, but it had hoped that the online mall would help sell developers on using its software.

"When we did the online mall, we did it as a way to get customers up and running quickly," Guarino said. "We discovered that as a business model, it wasn't the most successful. Our brand was what people first saw when they got online."

But the failure of World Avenue doesn't mean online malls won't work, Guarino said. "Online malls as a business can work if you have a group of stores offering similar products, maybe from a single geography."

Forrester's Green is less optimistic about the prospects for Web malls. "We've been saying for over a year that these are not viable. We're telling our clients who are retailers: Don't waste your time. If a Web hosting service has a mall, that's fine, but don't bet your store traffic on it."

She cited two exceptions, neither of which calls itself a mall. Online Occasions runs MothersDay.com and ValentinesDay.com, which Green called "a mall built with a purpose, not a vague destination."

The other example, StoreSearch, is a search site where consumers look for something they want to buy, an important distinction from chat sessions or category information offered on some Web malls.

Some online companies have been successful with this formula. CUC International just today paid America Online $50 million to offer its shopping, travel, and other services on AOL's network. (See related story)

Green thinks that AOL can make the concept work because it coordinates its online content with its e-commerce offerings--putting a link to a shopping service within or close to a story about a related subject, for example.

The site iVillage is also experimenting with this approach, partnering with commerce partners to place books on parenting in a parents' chat area, for instance.

Despite the woes of its e-commerce ventures, IBM is not phasing out its Internet business unit, according to Guarino. "The Internet business unit is kind of a think tank or start-up. It's standard business procedure. We are developing emerging technologies to the point that when we think they're marketable, [then] we hand them over to the appropriate group to market them."