Myths n Realities About E-Commerce

8/12/2019 Myths n Realities About E-Commerce

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MYTH NO. 1: It's Easy.AKA: The Barriers To Entry Have Never Been Lower. Yes, puttingup a Web site is easy. And putting up a Web site to handle commercetransactions is pretty easy, too. But add words like effective, scalable,and successful, and it gets a lot harder.

For large, established companies, the No. challenge is integration.!A Web site is like an iceberg,! says "elta Air #ines $%& $harlesFeld, a longtime %' e(ecutive with stints at Frito)#ay and BurlingtonNorthern. !What you see looks small and simple, but below it youhave infrastructure integration issues with maybe *+ or + databases.-o building a Web infrastructure can be a pretty serious risk for oldercompanies.! For more on the technical intricacies of Web commercesites, see story, !/ega Web -ites.!0

'he $ompumotor division of manufacturer 1arker 2annifin $orp.knows that all too well. $ompumotor3s e(tranet for handling orders forindustrial automation system products went live last week))but notuntil after a one)year delay to deal with response time, serverupgrade, and integration challenges. !-etting up 4)commerce is noteasy or fast,! says $ompumotor %- manager Bud 1arer.!1erformance and scalability are the biggest issues. 'his is the waywe decided to run our business, so we weren3t going to do it until we

had acceptable response time and data that is absolutely accurate.!

'he e(tranet will handle orders for 5,++ products, warranty andnonwarranty repair)status 6ueries, and many other transactions from7 distributors, 8 factory reps, 5+ direct customers, and + internalemployees. 'o ensure performance, $ompumotor upgraded its2ewlett)1ackard server and moved part of its &racle database to a-un /icrosystems 9ltra-parc server to share the load. 'he companydevoted four worker)months to designing and integrating the e(tranetapplications3 Active -erver pages, with :+; of the coding time spent

on data availability and accuracy. !We didn3t want to guesstimateanything,! says 1arer. !&ur business depends on this.!

For many companies, the business issues of 4)commerce are no lessdaunting. $hanges in business processes, customer and supplierrelationships, data access, data ownership, distribution strategy, andmarketing tactics underpin most Web)commerce efforts.
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!'he technology integration issues are huge, particularly at the backend, but we feel we3re meeting those,! says 1ohn?east. !'he front end is a whole other challenge. What are customersgoing to use this energy)usage data for, and how do they want toreceive it@ %t3s a brave new world, where users have access toinformation they3ve never had before))and there3s no standard for it.!

For business)to)consumer online efforts, doing 4)commerce wellstarts with driving traffic to your site. /any early sites did a good obharnessing Web technology, but those efforts languished becausenot enough shoppers came calling. !/any companies didn3t realiethat a Web site needs a compelling marketing program to go with it,!says -heldon #aube, chief technology officer of Web systems

integrator 9- Web %nc.

9- Web has worked with American Airlines and sports)e6uipmentretailer C4% %nc. on marketing tactics, such as American3s weekly 4)mails alerting customers to cheap weekend fares and C4%3se(pansion of its Web presence with targeted links on outdoor)activityWeb sites. And e6ually if not more important, the companies began toadvertise their 4)commerce capabilities in traditional media. !#et3sface itD 1eople still watch 'E and read magaines,! says #aube.

!Building a site is ust one piece of the pule.!

MYTH NO. 2: It's chea.!erhas E"co##erce is cheawhen compared with a full)blownenterprise resource planning implementation or the purchase of amainframe. But for a number of reasons, a full)scale onlinecommerce effort is never a low)cost proposition. Business)orientedcommerce server software, such as /icrosoft -ite -erver $ommerce4dition, may start as low as ,+++, but that3s ust the first buildingblock in a comple( undertaking see /yth No. 0. $ompanies spend

an average of G+,+++ ust for the baseline technology, according toa


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/arket3s 'ransact is great for transactions, for e(ample, but not forcontent. 4)commerce always ends up costing much more than anyone vendor3s product.! And guess where the big)ticket systemsintegrators))%B/


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with research firm ?eenan Eision. !%t goes along with theirconservative management))using merchandising techni6ues from +years ago, like heavy promotion of loss leaders in low)cost adchannels like local newspapers and radio. 'hey still work, and Fry3ssees no reason to go on the Web.! Fry3s doesn3t comment on itsbusiness strategies.

With a few notable e(ceptions, such as


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books, says 1rince. !When you buy a dress, you want to try it on, seehow the fabric feels, check out the color,! he says. !'here3ssomething very special about that e(perience that you can3t get onthe Web.!

'hat said, Burlington $oat Factory is revamping its site to featuremore products. Also, the company is considering adding a gift registrythat would let shoppers visit its stores, identify the specific articlesthey like, and then register them on the site so that relatives andothers can buy gifts online according to those selections. But even ifBurlington increased its online sales to e6ual the volume of + of itsstores, !that would be significant for a chain our sie))and a surprise,!1rince says.

4ven by the most generous accounts, online retail sales remain onlya tiny fraction of what3s sold in physical stores or through mail)ordercatalogs))even in the Web3s most popular product categories. &nlinebook sales will account for less than ; of all 9.-. book sales thisyear, according to ?eenan Eision. &nline music sales@ #ess than 5;.4ven online travel sales))which will reach .H billion this year,leading all consumer products e(cept %' products0 sold online))won3teven reach ; of the *HH billion in total 9.-. travel spending. Web)based advertising revenue also remains minuscule compared with

broadcast and print))ust +.*; of ad agency bookings this year.

What about business)to)business 4)commerce, which is proected toleave business)to)consumer cybersales in the dust and soar into thetrillions of dollars by 5++8@ 'hat mostly reflects the fact that business)to)business commerce in the offline world is orders of magnitudelarger than sales to consumers. For most established companies, it3sstill early in the 4)commerce game. %t3s easy to look at how

Amaon.com shook up the book industry in four years and fly intopanic mode, fearing that your company could be put out of business

tomorrow by a Web startup. But books and music0 are the productsbest suited to online selling, and Web startups will always get adisproportionate share of attention simply because they3re Webstartups. CememberD Amaon won3t be turning a profit any time soon.

!4)commerce is like the market in $hina for 9.-. companies,! says9- Web3s #aube. !/ost probably aren3t making a profit there yet, but


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they3re in $hina because of huge market potential. 'he returns will bea few years in coming. You have to have deep pockets and be willingto stay with it.!

MYTH NO. : The /e0 eves the ayin& ie%.AKA: (tart,s an Instanty o#ete&n 'he -ame Footing As#ong)4stablished $ompanies.

With a few notable e(ceptions, such as Amaon, 4)'rade, and onlinegreeting)card maker Blue /ountain Arts, the biggest 4)commerceplayers are big, established companiesD $isco, "isney, "ell,/icrosoft, $harles -chwab. $ompanies that want to be successful atWeb commerce need the marketing clout, brand identity, and scale todo back)end fulfillment and customer service))and above all, they

need the capital see /yth No. 50. 'hat3s why so many startups areeither merging like music retailers $"Now and N5?0 or are beingbought by big physical)world competitors note Ceel.com3s ac6uisitionby 2ollywood Eideo0.

A popular line on the conference circuit is, !&n the %nternet, no oneknows you3re a dog.! But over time, another one)liner holds moreweightD -ie does matter.

-ie, in most cases, means brand power, trust, and consumerconfidence. !%n theory, anyone can enter any market in 4)commerce,!says 1aul


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of the leading choices.!

%n business)to)business 4)commerce, the Web admittedly does openthe door for small companies to bid on contracts and sell to largecompanies. 'his truism is usually posited in comparison to 4"%,whose prohibitive cost, infle(ible formats, and technical comple(itylocked small suppliers out of relationships with the Boeings and Wal)/arts of the world. 'here are cases where this ma(im holds true."oing business with more small suppliers is a goal of #os Angeles$ounty3s ambitious Web)based procurement initiative, saysprocurement director $hrys Earnes.

But the Web also makes it easier to do business with the largestsuppliers and customers. -o 4)commerce is actually causing some

companies3 purchasing departments to reduce their number ofsuppliers and buy more from the largest ones in order to get biggerdiscounts and better service.

'hat3s a stated goal of $hevron, one of the largest companies tolaunch Web)based procurement. $hevron is moving portions of itsstaggering + billion a year in supplies and services procurement tothe Web using software from Ariba 'echnologies. !We have 5++global suppliers, and we want to channel as much business as we

can to those companies to drive our costs down,! says >erry>acobson, manager of purchasing strategy at $hevron. %ndeed, thereduction or elimination of !maverick buying! from unauthoriedsuppliers is a goal of Web)based procurement initiatives at Bristol)/yers -6uibb, Ford,


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done very well selling on the Web. "ell sells + million worth of 1$sper day on its Web site))triple what it sold online last year.0 But mostsuccessful 4)commerce players are using the Web to enhance theire(isting distribution channels, not circumvent them. 4ven $isco, oneof the most successful 4)commerce practitioners, makes G+; of itsonline sales to resellers, not end customers.

&ther e(amples abound. $onsumers can3t buy a motorcycle on2arley)"avidson3s Web site, but the manufacturer3s dealers canaccess a 2arley e(tranet whose features include a repair)partsinformation database and speedy processing of reimbursements forwarranty repair work.


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business strategy at >unglee $orp., a content aggregator ac6uiredearlier this year by Amaon.com. Adds $hemde( president "avid1erry, !%f you have only three or four suppliers, you certainly don3tneed an electronic marketplace. But most industries have a lot morethan that.!

MYTH NO. 4: It #eans the en% o #ass #ar5etin&.Once a&ain* the theory is si#e eno,&h:'he Web is the firstcommunications channel that enables cost)effective one)to)onemarketing on a huge scale. /arketing to a !segment of one! has longbeen the goal of database marketing, data mining, and telemarketing,but Web technology enables marketing of unprecedented e(actitudeand low cost.

But how do companies get people to come to their Web sites in thefirst place@ $ustomiation and personaliation are fine for customerretention but not so good for customer ac6uisition. !%n the globalworld of the %nternet, what counts is brand,! says $ompa63s /eyer.'hat3s why Yahoo posted billboards at -an "iego3s Kualcomm-tadium during the World -eries, and why Web shopping siteBuy.com kicked off a 5 million mass marketing campaign with adson /onday Night Football last month.

$an consumers click on a stadium billboard or 'E ad to purchasesomething, which is what the !mass marketing is dead! pundits claimall ads should let buyers do@ &f course not. Buy.com founder and$4& -cott Blum knows that it will take conventional marketingchannels such as /onday Night Football, as well as low)pricedmerchandise online, to achieve his company3s goal to leapfrog

Amaon.com. !We want to be a household name,! says Blum, andthat won3t happen with only targeted Web banner ads. Witness theproliferation of mass)media ads for Web sites during the currentholiday shopping season.

/ass marketing is also a necessity for the captains of online industry."ell isn3t the largest online 1$ seller only because of e(ecutionI italso heavily markets its direct)selling approach))on prime)time 'Eand elsewhere. !%n theory, an %nternet)only computer company shouldhave surpassed "ell by now,! says 9- Web3s #aube. !But there is no31$s.com,3 at least not one that3s been very successful. %n 4)


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commerce, branding and mass marketing are more important thanever.!

9ltimately, that3s ust common sense))at least for those whounderstand there3s more to 4)commerce than click)throughs. !Youcan3t ust build it, because they will not come,! says $liff $onneighton,$4& of %coms %nc., which has developed commerce sites for2oughton)/ifflin, 2asbro, Fuitsu, and other companies. !'iger4lectronics doesn3t e(pect people to find Furby.com, so they run 'Eads. 'he Net is like 'E with + million channels. You can3t ust hopethat someone surfs by.!

MYTH NO. 6: It ea%s to ro%,ct co##o%i7ation.(o#e %iscies o this %oapoint to 1riceline.com, the site where

consumers set the price they want to pay, then let airlines and othersuppliers compete to meet that price. $ertainly, it3s an innovativemodel that wouldn3t be possible without the Web. &nline auction sitessuch as &n-ale and eBay have also been successful and have theirplace for some types of products. But price isn3t the No. sellingpoint for most companies online.

Amaon.com and "ell have the most online customers in theirindustries, and they don3t always offer the lowest prices. 'hat3s

because customers also want brands and service they trust. Andthey3re figuring out that searching the Web to save a few bucks canbe no less aggravating than driving all over town for a bargain. &nlineshopping agents, or !bots,! such as 4(cite 1roduct Finder and/y-imon, have their fans, but they can still be frustrating andineffectual see story, !$all Your Agent For &nline -hopping!0.

!%n 4)commerce, the 6uality of the participant is more important thanever,! says &ffice "epot E1


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Myths n Realities About E-Commerce

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