10 Things.... E-Commerce Strategy

8/6/2019 10 Things.... E-Commerce Strategy

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Internet and eCommerceStrategies

Bulletin

Ten Things You Need to Know AboutSuccessful eCommerce Strategy

Analysts: Gigi Wang and Carol Glasheen

IDC Opinion

What do leading ecommerce sites behavior and plans tell us aboutkey strategies for online business success?

Key findings from an IDC survey of executives responsible for theirbusinesses ecommerce initiatives reveal:

N There is a need for speed; companies are moving online veryquickly.

N Online profitability will be the rule within 12 to 18 months.

N A leapfrog opportunity exists in international ecommerce.

N Aggressive use of infrastructure outsourcing/hosting is the rule.

N Personalization will be mandatory within 6 to 12 months.

N Broadband and appliance content development is a 2000 priority.

N Security, speed, and site navigation remain key challenges.

Filing Information

May 2000

IDC #22220Volume: 1Tab: Users


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Executive Summary

In one of the most comprehensive surveys undertaken among high-level Internet executives, IDC honed in on the creation of successfulecommerce strategies. Some of the more significant findings are asfollows:

N Leaders are moving sales volume to the Web faster than youthink. The average company in IDCsInternet Executive ePanelcurrently fulfills 40% of its products and services sales over theWeb. Business-to-consumer (B2C) businesses and those that sellto both businesses and consumers (B2BC) are further alongthan business-to-business (B2B) in shifting business to the Web.

N The global online opportunity remains largely untapped. ForIDCs epanelists, international sales (outside the United States)represented just 13% of their total Web sales, even though 38%of worldwide Internet commerce opportunity in 1999 wasoutside the United States.

N Many leading online businesses are already more profitablethan you think. Among IDCs epanelists, more than one-quarter(27%) have profitable Web-based operations today. Profitabilityis more common among B2B and B2BC than it is with B2Cbusinesses.

N Profitable Internet operations will be a growing majority within the next 12 to 18 months. A total of 48% of IDCepanelists expect their online businesses to be profitable in2000. By 2001, that percentage will approach 60%.

N A sizeable minority still dont run the online business as a realbusiness. More than one-fifth (21%) of respondents said that

they do not measure profitability of their Internet business.These will be the leading candidates for failure in the comingonline business shakeout.

N Internet executives believe that their profit margins forInternet operations should be at least as high as profitmargins for conventional operations. IDC epanelists whobelieve online margins will be better than offline marginsoutnumber by more than three to one those who believe they will be lower. This is particularly true for B2B and B2BCbusinesses.

N Outsourcing Web-site infrastructure is very common,

particularly for B2C businesses.Nearly half of respondents

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For additional copies please contact Cheryl Toffel, 508-935-4389.

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reported that a third party hosts their Web site. For B2Cbusinesses, almost 60% are using a Web hosting service. This isover twice the rate of outsourcing of traditional IT systems. IDCbelieves this is due to both a short-term skills crunch as well asa long-term shift toward a business view of IT as aninformation utility.

N Personalization is the fastest-growing new capability beingbuilt into Web sites this year. In 2000, the percentage of IDCepanelists sites that offer personalization will more thandouble, from 25% to 63%. This should be a strong wake-up callto businesses that are not offering it.

N Businesses are developing for broadband and appliances faster.By the end of 2000, nearly 40% of IDCs epanelists expect tohave developed special content for visitors/customers with high-speed (broadband) Internet access. Almost 30% expect to havedeveloped special content for non-PC devices such as mobilephones and Palm Pilots. IDC believes that early support of bothwill give businesses opportunities to take market share.

N Security, speed, and ease of navigation remain the three mostchallenging issues for leading sites. Executives rate their sitesperformance in providing services that are secure, fast, and easyto navigate as the areas most lacking relative to their perceivedimportance of those Web characteristics. These challenges areleading many sites to under-invest in critical areas such asimproved online customer service, integration of the Web siteinto core business systems, and content localization.

IDCs Internet Executive ePanel

In August 1999, IDC conducted a survey of 656 executives at

organizations that provide either B2B or B2C services via the Web.Respondents were self-selected, that is they volunteered toparticipate in the survey. Each executive participating in the surveywas invited to participate based on his or her strong knowledge ofand management role in the companys online business. Individualsthat did not meet either of these criteria were eliminated fromfurther interviewing. Hence, the survey is based on senior-levelindividuals that are highly knowledgeable about the underlyingbusiness issues in our survey. Nearly half of the individuals surveyed(48%) were the CEO, COO, president, or owner of the company. Theremainder were most often from a technology area (CIO, CTO, MIS,MIT) or a VP of marketing or sales, making this survey one of themost comprehensive ever conducted among senior-level Internetexecutives.

Insights Into the Online Business

High Sales Volume Through the Web

Of the 656 executives surveyed, 553 of their companies sell productsand/or services via the Web, either on a B2B or a B2C basis. Overall,the average company represented in our survey sold 40% of its


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goods and services through the Web, indicating that our epanelistsare experienced Web marketers and represent a segment of Webbusiness more Internet-proficient than the mainstream. Companiesthat market to both businesses and consumers via the Web are wellahead of the B2B marketers but only slightly ahead of B2Cmarketers in terms of the percentage of their business that is run

through the Web (see Figure 1).

All categories of Internet executives anticipate that the percentage ofsales generated via the Internet will rise during 2000, achieving again between 7% and 10% of total sales. At the end of 2000,businesses that provide both B2B and B2C (B2BC) products andservices over the Web will still be well ahead of those providing onlyB2B products and services, at least in terms of percentage of overallsales generated via the Web.

Low Online Sales Outside the United States

Because the Internet allows companies to expand their globalpresence, IDC examined the percentage of Internet sales revenuegenerated from outside the United States. The percentage does notdiffer significantly by business model (i.e., B2B, B2C, or both) andaccounts for 13% of Internet sales for the overall sample. Thispercentage is relatively small; however, as most primary sites stilloffer only limited language support and limit their cross-mediapromotions to specific countries, this percentage is significant.

Figure 1

Mean Revenue Share from Internet Sales, 1999 and 2000

Note: Results are based on respondents who sell over the Web.Source: IDCs Internet Executive ePanelversion 1.0, 2000


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Development of localized content for international marketsrepresents an excellent opportunity for businesses to lead the packin addressing non-U.S. online markets, as 38% of worldwide Internetcommerce opportunity in 1999 was outside the United States, and by2003, that percentage will grow to around 60%.

Many Companies Are Profitable; Most Will Be Soon

When the dot-coms will actually achieve profitability is the mostsignificant issue for many companies and their investors. Accordingto IDCs survey of Internet executives, 27% of companies areprofitable today. Those companies providing B2BC products andservices are most likely to be profitable, while companiesparticipating in the B2C segment are least likely to be profitable (seeTable 1). More than one-fifth (21%) of respondents said that they donot measure profitability of their Internet businesses.

Table 1

When Online Operations Will Be Profitable by Type of Web Selling(% of Respondents)

Total B2B B2C B2BC

Already profitable 27.3 29.3 22.2 32.8

2000* 46.7 49.5 41.2 54.9

2001* 59.1 65.5 52.3 67.6

2002* 63.2 68.7 63.4 71.9

2003* 64.4 69.2 65.0 73.9

After 2003* 66.4 70.3 66.6 76.6

Dont measure profitability 21.0 18.1 12.7 12.4

Dont know 12.4 11.7 20.6 11.0

N = 651 188 63 299

* Cumulative responses shown

Messages in the Data:N The minority of operations are profitable today.N By yearend 2001, almost 60% will be profitable a sea change.N Online businesses in 2000 must be well on the way to building operating

models that are profitable.N Businesses that are planning for profitability to begin in 2002 and

beyond, or do not know or measure profitability, are at great risk.

Source: IDCs Internet Executive ePanelversion 1.0, 2000

Companies that sell to both businesses and consumers over theInternet are not only most likely to be profitable already, they aremost likely to be in the profitable category in the future. Thesecompanies are also the most likely to measure the profitability oftheir Internet businesses. Within the next 12 to 18 months, thepercentage of Internet operations that will not be profitable will bein the minority. What this finding suggests is that the criteria that


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venture capital companies place on those entities they select forfunding will change significantly over the course of the coming two years. Instead of seeking business plans that embrace a newtechnology or high market penetration, emphasis will shift to amore conventional business model of profitability.

There is great optimism that profit margins for Internet operationswill be higher or at least the same as other operations (see Table 2).In the B2C segment, the percentage of companies that anticipatetheir profitability of Internet operations to be higher than otheroperations is lower than other categories; still, more than half ofrespondents believe that their Internet operations will provide profitmargins at least as high as other operations. This fact, whencombined with earlier expectations of profitability, provides strongevidence that Internet operations performance indicators areshifting. Whether this higher-margin vision turns out to be correctis open to debate, but IDC believes that in most industries, theonline business will have a lower cost structure than traditionalchannels, making it imperative to quickly develop the new

Internet-based business infrastructure.

Table 2

How Profitability of Internet Operations Will Compare by Type ofWeb Selling (% of Respondents)

Total B2B B2C B2BC

Higher margins 44.1 49.5 39.7 50.0

Same margins 12.4 19.4 11.1 8.1

Lower margins 12.4 8.1 17.5 11.7

Don't know 19.8 15.1 12.7 15.8

Only selling through Web 11.3 8.1 19.0 14.4

N = 646 186 63 298

Messages in the Data:N There is strong optimism that the Internet channel will be more profitable

than traditional channels. This optimism is a key element driving largeinvestments in Internet-based business operations.

N IDC believes that in most industries, whether Internet margins prove tobe greater in the long run or not, Internet-based operations willnevertheless define a new lower cost structure for doing business.


Affiliate Marketing Emerges as a Critical Marketing Tool

In order to better understand their marketing methods, IDCs Internet Executive ePanelwas asked what methods they use forpromoting their Web sites. Print advertising received the highestlevel of response, but affiliate marketing was a strong second.Successful negotiation of partnerships, alliances, and comarketingarrangements is taking a more critical role than it has in the past. In


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addition, affiliate marketing is evolving to become more targetedand appropriate as information about site visitors increases.

In the B2B sector, affiliate marketing received more responses thanprint advertising, although findings were not statistically significant.The strength of affiliate marketing in the B2B segment shows, inIDCs view, a growing recognition of the importance of affiliatenetworks in the B2B space. Many businesses have incorrectlypositioned affiliate marketing as a solely B2C tool.

There were some significant differences in the findings among thedifferent business models. For TV, print advertising, and radio thethree dominant mainstays of advertising B2C entities were morelikely to invest than their B2B or B2BC counterparts (see Figure 2).

Figure 2

Method of Promoting Web Site by Business Model



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Insights Into the eCommerce Site

Heavy Dependence on Outsourcing/Hosting

A very high percentage (47%) of Internet executives reported thattheir Web sites are hosted by a third party. This is most likely to bethe case in B2C companies (59%) and least likely in B2B companies

(39%). Companies that provide both B2C and B2B services are closerto the B2C companies in terms of their likelihood to outsource; theyreported doing so 52% of the time, over twice the rate ofoutsourcing of traditional IT systems. IDC believes this is due toboth a short-term skills crunch as well as a long-term shift toward abusiness view of IT as an information utility.

Key Site Investments: Online Ordering, Personalization,and Community/Membership

Overall, the most frequently reported activity currently available onthe Web is providing customer service/support (57% of companiesreported this activity). However, there are some wide variations

depending on the business model. In B2C companies, onlineordering ranks as the activity most frequently available on the Web,while in the other types of companies it is customer service/support(60% of both B2B and B2BC companies). B2C companies are morelikely to provide classified advertising and community features. Theavailability of personalized Web pages is approximately equal in allcategories. Comparison shopping, while relatively uncommon as anactivity across all three business models, is almost twice as likely toappear on B2C and B2BC sites as B2B sites. Auctions, which havereceived so much media attention in terms of their potential abilityto drive down pricing for all types of goods and services, are the leastlikely activity to appear on any type of site (see Table 3).

Involvement in all activities is anticipated to rise significantly duringthe next 12 months. The greatest gain is anticipated for personalizedpages (gaining an additional 39% penetration, for a total penetrationat yearend 2000 of 63%). The relative ranking of those activitiesmost likely to appear on a Web site will remain approximately thesame during the coming year. Customer service/support will remainthe most penetrated service offered, with 88% of Web sites offeringthis activity. As predicted by Internet executives, customer/memberregistration will continue to take second place and online orderingthird. Personalized pages, now in fifth place, will increase in statusto fourth place, exchanging places with community features.Likewise, comparative shopping, now in seventh place, will replaceclassified advertising, currently in sixth place. Auctions, thoughincreasingly appearing on nearly one-fifth of Web sites (19%), willstill remain in a distant eighth place relative to other Web activitiesreported.


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Table 3

Activities Currently Available on Web Site, 1999 and 2000(% of Respondents)

Total B2B B2C Both

1999

Online ordering 43.8 35.1 71.4 55.6

Customer service/support 57.5 60.1 57.1 59.9

Customer/member registration 47.3 48.9 44.4 53.3

Personalized pages 24.5 26.1 27.0 25.8

Competitors pricing/comparative shopping 9.9 6.9 12.7 12.3

Community features 27.1 20.2 34.9 27.5

Classified advertising 13.7 10.6 23.8 15.9

Auctions 4.4 3.7 4.8 6.0

N = 553 188 63 302

2000Online ordering 76.8 72.3 92.1 92.1







Auctions 18.9 10.6 25.4 25.8

N = 553 188 63 302

19992000 Growth*

Online ordering 33.0 37.2 20.7 36.5







Auctions 14.5 6.9 20.6 19.8

Note: Multiple dichotomous table; responses reflect the percentage of respondents

selecting each option.*Represents difference between 2000 and 1999 data rather than actual percentagegrowth.



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Leaders Developing Killer Apps for Broadband, AppliancesThis Year

IDCs epanelists were also asked whether they have special contentor a special site aimed at visitors who have broadband Internetaccess or who are accessing the Internet through non-PC devicessuch as cell phones, Web TVs, palm computers/PDAs, or otherdevices. Overall, Internet companies are more likely to have specialsites targeted for broadband access than for non-PC access, andbroadband will be a more important focus for companies throughout2000. Even so, both broadband and non-PC access will experiencetremendous development activity in 2000 (see Figures 3 and 4).

While both the B2B and B2C segments are more concerned withbroadband development than wireless (at least during 2000), theB2BC segment is nearly equal in its concern for both types ofdevelopment. The greatest amount of development for broadbandwill take place in the B2C sector, where 35% of sites will incorporatethis functionality in 2000, but it is the B2BC sites that anticipate thegreatest development in the non-PC access area (29% of sites will

incorporate this functionality in 2000).

Figure 3

Plans to Implement Services/Sites for Broadband Access



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Pain Points: Security, Speed, Navigation; Slow Investment in Other

Key AreasFinally, IDCs Internet Executive ePanelwas asked to rate theimportance of certain characteristics for an Internet site and thenasked to rate their sites on each of these same characteristics. Themost important trait for a Web site is its security (see Table 4), where80% of executives believe it is very important. Speed (fast) andease of navigation are tied for second place in perceived importance.The features that rank lowest in Internet executives perceivedimportance are having a site that is multimedia-rich (only 9% ofexecutives believe this characteristic is very important) andentertaining (13%).

It is evident that when rating their companies implementation of

the same characteristics, executives are falling short of their ownperceived level of importance on virtually every Web-sitecharacteristic measured. In addition, it is apparent that companiesare not executing best on those traits that they necessarily rate asmost important. In particular, integration with the companys corebusiness systems is given higher priority in perceived importancethan it is on a self-rating. Service-oriented is the one area in whichcompanies outperform their level of perceived importance.

Figure 4

Plans to Implement Services/Sites for Non-PC Access



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Table 4

Perceived Importance of Web Site Characteristics and Self-Ratingson Execution (Mean Score)

Type of Web Business

Total B2B B2C B2BC

Importance of Characteristic (Rank)

Fast (2.5) 4.4 4.4 4.2 4.4

Secure (1) 4.5 4.4 4.5 4.6

Integrated with the companys corebusiness systems (4)

3.8 3.7 3.7 3.9

Easy to navigate (2.5) 4.4 4.3 4.4 4.5

Entertaining (9) 3.1 2.9 3.2 3.2

Interactive (5) 3.6 3.3 3.4 3.8

Personalized (7) 3.4 3.2 3.2 3.5

Service-oriented (6) 4.1 4.0 4.2 4.3

Localized (8) 3.3 3.2 3.1 3.4

Multimedia-rich (10) 2.6 2.4 2.6 2.7

N = 390 131 50 209

How Well They Are ExecutingCharacteristic (Rank)

Fast (2) 3.9 3.8 3.8 3.9

Secure (1) 4.2 3.9 4.3 4.3

Integrated with the companys corebusiness systems (5)

3.2 3.0 3.1 3.3

Easy to navigate (3) 3.7 3.5 3.6 3.8

Entertaining (7.5) 2.6 2.3 2.7 2.6

Interactive (6) 3.0 2.8 2.9 3.1

Personalized (7.5) 2.6 2.5 2.4 2.7

Service-oriented (4) 3.5 3.2 3.4 3.7

Localized (9) 2.4 2.2 2.2 2.6

Multimedia-rich (10) 2.3 2.0 2.2 2.5

N = 386 129 50 207

Notes:

Importance scores are based on a scale from 1 to 5, with 1 being not importantand 5 being very important.

Execution scores are based on a scale from 1 to 5, with 1 being executing verypoorly and 5 being executing very well.


The biggest gaps in ratings of perceived importance versus self-ratings occur in speed (fast) and ease of use (easy to navigate).This is troubling in that these are rated very high (tying for secondplace) by Internet executives and, along with security, would be themost highly rated factors by users (see Figure 5). Indeed, IDC


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believes these challenges are leading many sites to under-invest incritical areas such as improved online customer service, integrationof the Web site into core business systems, and content localization.

Conclusion

When it comes to making incremental investments in your Web site,it is quite likely that most of the investments you make arenecessary to maintain your marketplace position. As the percentageof business coming in through the Internet increases, both for yourbusiness and for your industry, how that investment is spentbecomes more critical to monitor. Investments to help targetappliance and broadband users are now viewed as essential, not as aluxury. A critical aspect of competitive intelligence today stems from

assessing the Internet capabilities of your competitors and matchingor exceeding those capabilities in your own business. Without thiscrucial analysis, you are likely to miss out on the emerging and mostrapidgrowth portions of the Internet economy. With that in mind,take the following investment recommendations into account forsite development:

N Consider investing ahead of the pack in localizing your site(s)for the large high-growth markets outside the United States,notably the United Kingdom, Germany, France, and Japan.

Figure 5

Perceived Importance of Web Site Traits Versus Self-Rating on the Same Activities

N = 390



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N Increase focus and investment on personalization, communityfeatures, and better online service (including live support).

N Dont forget the basics: Security and ease of navigation remainhighly (self-)criticized areas.

N Strategize this year for supporting new key Internet

infrastructure capabilities, including broadband, appliances, andwireless access.

It is virtually impossible in todays fast-paced economy for any singlebusiness to rely solely on in-house expertise. In order to maintain alevel of development that exceeds that of the competition, consideroutsourcing those portions of your development effort in which youlack expertise, such as wireless applications protocol (WAP). Skillsshortages are also a factor in your ability to quickly bring newapplications online and migrate to new technologies. For thesereasons, you should remain open to outsourcing IT infrastructureand others portions of the online business. Consider using third-party services companies to address shortcomings in security,

scalability, and ease of navigation, allowing you to increase focus onthe next wave of Web site requirements: integration with corebusiness systems, improved customer service capabilities,personalization, and localization.

Nevertheless, some of the most significant considerations are thosethat dont involve technology:

N Build your online business on a model that offers sustainedprofitability. If it is not profitable within the next 12 to 24months, you are likely to be an online loser in your market.

N Recognize that as the percentage of business that comes overthe Internet increases in your industry, lowering your cost

structure the overall profitability of your business willdepend on the size and financial health of your Internetbusiness.

N Maintain a separate P&L for your Internet business. Without it,you cannot track your progress. Although basic, it remains oneof the most forgotten lessons by Internet executives.

N Recognize that you cannot go it alone. Increasingly,channel/affiliate marketing is the critical means of attractingnew customers and gaining market share.


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Document #: 22220Publication Date: May 2000Published Under Services: Internet and eCommerceStrategies; Consumer eCommerce: Core; Online FinancialServices: Core

Document #: 22220Publication Date: May 2000Published Under Services: Internet and eCommerceStrategies; Consumer eCommerce: Core; Online FinancialServices: Core

10 Things.... E-Commerce Strategy

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