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"If we had two more employees," says David Prais, the CEO and founder of Chumbo.Com, "we could scale annual sales to $400 million."  Not bad for a company that now only has five employees. In effect, the average sales per employee would amount to about $57 million.  It was this huge potential that convinced Prais to quit a great job as global marketing director at Gateway 2000 (which, by the way, has 9,700 employees).  So, on April 15th, he founded his company.  His goal: to use the Web to make software distribution much more efficient -- and pass the cost savings to customers.

In the United States, the software retail channel represents $10 billion a year.  However, there are but a handful of "brick-and-mortar" software retailers,  such as CompUSA and Best Buy.  These retailers have used their clout to exact tough terms for software publishers.   The result has been that mainly the powerhouse software publishers, such as Microsoft, Broderbund, Symantec, and Corel, can afford the expense of buying shelf space.  In this environment, smaller software publishers are looking for alternative methods of distributing their products.  One method is direct sales, such as mass mailing or cold calling.  But according to Prais, the best channel is the Web.

To make distribution more efficient, Prais developed technology to create a direct link between the customer and the distributor.  Here's how it works:

Just as with any commerce Website, the customer searches and finds a product to buy on Chumbo.com.  The customer then enters personal information, which is on a secure server, so as to protect personal and credit card information from fraud.  The customer presses the Submit button, and the order is processed in real time.  The Chumbo technology checks the credit card information, and verifies the name and address. Then a tax is levied (if the customer is located in Minnesota).  Through e-mail, a confirmation is sent to the customer, as well as a tracking number for the shipping confirmation and status through either the U.S. Postal Office or Federal Express. 

Chumbo has a direct connection with the EDI systems of various software distributors.  Essentially, EDI is a standardized way in which companies exchange business documents -- such as bills of lading, invoices, and purchase orders -- with other businesses. Interestingly enough, many businesses (usually the big ones) have been using EDI for decades.  Chumbo has direct links with the EDI systems of Merisel, which is one of the world's largest computer hardware and software distributors ($3.44 billion in sales in 1996) and Point Group, which is a leader in providing software bundles; it has relationships with more than 200 software publishers.

Once the EDI systems receive the message from Chumbo (the process takes about two minutes), the software product is shipped to the customer.  What this means is Chumbo has zero inventory. The only product it receives is returns, which are then shipped back to the distributor. "As we speak," Prais says to me on the phone, "there are probably orders being processed.  Other than through our Website, we have had no contact with the customer.  Rather, we are allowing the customer to communicate directly to the distributor."  It's a company on auto pilot.  And this has meant extremely low overhead -- about 2 percent to 3 percent of revenues. 

What's more, the customer is given more choices.  After all, the biggest software retailers have shelf space for about 500 products.  Chumbo says it plans to scale its virtual shelf space to 10,000 products.  Yes, the model is similar to Amazon.com.  However, even Amazon.com has its own physical inventory (the company maintains inventory of best-selling books). Besides, Amazon.com is also losing millions. 

Providing value, but offering low prices is not the only advantage of Chumbo.  There are a variety of value-added features:

1. Personalization:  When you first enter the site, you'll be asked to submit your e-mail address and first name, though these are not required.  With this information, the Chumbo technology will keep track of your navigation.  Over time, the site will be customized to your preferences. 2. Product Reviews:  Chumbo partnered with Ziff Davis to provide product reviews to its users.  In two weeks, Chumbo also plans on letting customers submit their own product reviews. (Amazon.com does a similar thing, which has been very successful in creating a sense of community.) 3. Shopping Cart:  No matter where you are on Chumbo.com, the shopping cart is always visible, which is not the case with many commerce sites. 4. Availability:  In real time, you can see if a product is in stock.

Most of the technology -- such as the direct link to EDI, the shopping cart, and the search engine -- were all developed in-house.  "We did look at third-party solutions," says Prais, "but nothing seemed to fit.  We require technology that allows for heavy traffic."  True, Chumbo does use CyberCash for its credit card transactions.  Then again, Chumbo's programmers rewrote most of the interface.

Getting The Word Out

To be a success on the Web, you need more than great technology.  You need to get as many eyeballs as possible.  After all, one of the reasons Amazon.com has such huge losses is that it spends millions on advertising. So far, Chumbo has relied on PR to generate traffic.  "On our site's launch day," says Prais, "we got 4,000 visitors."  But after that point, the traffic fell off.  But it has been averaging about 2,000 visitors per day.

Besides PR, Prais has other plans to generate traffic:

1. Links:  Arrange reciprocal links with other sites.  2. Co-Branded Sites:  Chumbo is in the process of developing co-branded commerce sites for major PC manufacturers and software publishers. 3. ISPs:  The ISP business is brutally competitive.  Each one is trying to differentiate itself by offering value-added services (for example, CNet offers its Snap online content service for ISPs).  Offering commerce can't only be a great way to differentiate an ISP, but also a means to generate transactional revenues.

Future

Chumbo has big plans.  One is to offer push technology to customers -- that is, a certain amount of hard drive space will be allocated on the customer's desktop.  Push technology will then send technical support updates, driver updates, software patches and upgrades, as well as demos, reviews, and news to the customer. The customer will be able to set aside a certain part of the day to have the information pushed (usually when the customer is not using the computer, such as early in the morning).  What's more, Chumbo wants to broaden its product line.  Shortly, the company will offer DVD through Warner Media Services.  Right now, you can't buy and then download software from Chumbo -- a process called Electronic Software Delivery. "This is a hot topic right now," says Prais, "but the bandwidth is not there."  But when bandwidth increases substantially, Chumbo will offer ESD.

IPO?

One of the hottest IPOs this year has been Amazon.com.  What's more, two other shopping sites -- CDNow and Shopping.com -- say they plan on an IPO. As for Prais, his goal is also to go public, though he said it is too early.  Who knows? With the capital, they might want to double its workforce -- to 10 people.