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"Yes, issues like bandwidth, security and privacy are very important for e-commerce," says Ken Ross, the CEO of PackageNet, a privately held company based in Fairfield, Iowa. "But I think we are missing an important issue: getting the product to customers."

Well, Ross thinks about this issue quite a bit. His company, which he bought in the early '90s (he sold his prior software company to Computer Associates), has the biggest retail network of UPS parcel shipping centers.

Let's take an example of how PackageNet works: Suppose you call Dell Computer and purchase the latest Pentium power machine. Instead of having UPS send it to your door step, you have them send it to the nearest grocery store, where you will pick it up from the customer service area and then bring it home (to hopefully have lots of fun).

Why would a consumer want to do this? Reasons include:

1. Convenience: How many times has a product been delivered, but you were not home to receive it? Statistics show that this occurs 40% of the time. With PackageNet, there is no need for redelivery of the product because users define the location -- which can be a grocery store that's open 24 hours.

2. Security: It is not a good idea to have a carrier leave a package on your door step. It is extremely tempting for a thief to steal it. Actually, this type of theft has been increasing rapidly. But this is not a problem if you pick-up the product at a grocery store.

But there are also advantages for the supermarket:

1. More business: With people coming into the store to pick-up their packages, they might be more inclined to make purchases.

2. Better Service: This is a way to provide more value to the consumer (after all, it is common to see banking and film development in grocery stores).

The carriers benefit, too. Actually, residential deliveries is a money loser for carriers (the cash cow is business deliveries). This makes sense. To send residential packages, the carrier will drive to many different locations across various neighborhoods - which is not very efficient.

In addition, the costs of redelivery are high, too.

But with the rise of e-commerce, residential deliveries is expected to explode. "Home deliveries from the Net and from other forms of home shopping will grow from 11% of retail sales to 27% within five years. This means an increase of 520 million packages to 1.56 billion packages per year."

This is bad news for carriers. In other words, 27% of their revenues will be unprofitable.

But PackageNet is working on a solution. It is called The Depot Network - which leverages its network of grocery stores to allow for efficient residential delivery of goods purchased via the Net.

Here's how it works: Suppose you're surfing the Web and find a leather jacket for sale. You click "buy now" and fill in your personal information and credit card. The Web site presents you with shipping options, in which you can have the product sent to the nearest grocery store in your area. This information is sent to the merchant, who will then notify the carrier.

The carrier sends the product to the shopping center - who will then send an email to you to indicate that the product has arrived.

Also part of The Depot Network is Returns Made Easy! One of the biggest problems with catalog and Internet shopping is the hassles with returning products. With Returns Made Easy!, a customer can bring the product to the shopping center and have it shipped back to the merchant. This compares to driving 30 to 40 miles to the nearest UPS center. Such big names as Land's End, Damark, Sears, and Microsoft (in MSN Plaza Internet mall) use this service.

Conclusion

By far, PackageNet is the biggest in its industry. It has agreements with 4,000 supermarket locations in 49 states. Currently, PackageNet handles 1% of the total domestic UPS shipping for households. In five years, the company plans on having more than 11,000 supermarket locations - which would cover 90% of the US population.

However, a key to the success of PackageNet will be marketing. Originally, PackageNet placed signs within stores. But, over the years, consumers have been less receptive to this type of marketing (surveys show only a 10% awareness).

The new marketing strategy is to have PackageNet employees give demos within the stores (they are called "dancing boxes," because they are outfitted in a delivery package). Another marketing strategy is to utilize the huge PackageNet database to create loyalty programs, such as frequent shipping discounts.

"Companies are just beginning to realize that without a better mechanism for shipping products," says Ross, "e-commerce will be inhibited." This is why the company has attracted such heavy-weights to its advisory board as Microsoft, CUC International, Pandesic, Netscape and Kroger.

As e-commerce increases, so will PackageNet. Don't be surprised if this one goes public.

Note: Information regarding The Depot Network is currently not on the PackageNet Web Site (http://www.packagenet.com). However, you can call 1-800-833-3145 for further information.

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