David Radin

Monday, 22 July 2002 10:02

The changing face of E-Commerce

The Internet is becoming big business. Companies whose sole missions are Internet related are now valued in the billions, their products and services often sell in the hundreds of millions of dollars and their growth rates are double- and even triple-digit.

Even companies that come from more traditional backgrounds are getting into the Internet full tilt, in many cases, because Internet commerce holds the promise of being the next big market or because Internet-enabled companies pose a major threat to their traditional competitors.

Just a few years ago, even the most savvy business people considered the Internet a diversion from their real businesses. But as Internet success stories started to pile up, more executives began to understand the value of e-commerce and other Internet activities. Rapid technology innovations have spurred even more growth.

With ubiquity comes opportunity

As in many businesses, critical mass is important to Internet business. The audience needs to be large enough to support the revenue goals for your company and the other companies in your segment, or some companies won't survive-possibly yours. Luckily, the market is growing dramatically, from less than 20 million users during the early 1990s to more than 100 million today, with little slowdown in sight.

Potential prospects and business partners using the Internet come from a broad range of target companies and many levels within companies, making it easy to reach the proper decision makers. The consumer market is expanding, too, as virtually every new computer includes a modem and Internet software. Most schools consider Internet proficiency a must and many require students to have computer access outside class.

The result is an Internet-enabled audience that is becoming ubiquitous, and starting to mirror the general population in demographics and scope.

One of the most compelling applications of the Internet in business is e-commerce-creating business relationships and transactions using the World Wide Web, e-mail and other Internet technologies. With e-commerce, transactions can be automated to increase revenue potential, decrease expenses associated with sales activities and enhance customer service.

Amazon.com: Creating an Internet brand

The prototypical Internet company that has accomplished all this and created a sturdy reputation is Amazon.com. Amazon.com started as a two-person operation and now has several hundred employees based on a simple concept: Create the largest available catalog of books, accept orders exclusively by Internet, and deliver them quickly and effortlessly. For fiscal 1997, Amazon.com transacted an amazing $147.8 million over the Internet-an increase over 1996 of more than 840 percent.

Amazon.com has grown so fast in both revenue and reputation that the company makes it look easy. But its founders have worked hard to create a unique position. Billed as the Earth's biggest bookstore, Amazon.com started by offering Internet users an easy way to access hundreds of thousands of titles from the comfort of their homes and offices.

While Amazon's intuitive interface makes it easy to find and order the right book, the company's follow-up is what really makes it different. In many cases, if you order your book today, it'll be on your doorstep tomorrow, because Amazon.com has perfected the back-end operation. So your order is processed swiftly with a minimum of hands touching it.

Creativity has played a large part in Amazon.com's incredible revenue growth. For instance, the company created one of the first successful Internet associates programs. Now, hundreds of Web operators create mini-Amazon.com bookstores on their sites and collect a small share of the revenue. Earlier this year, Amazon.com moved beyond books into music and may push its techniques into yet more e-commerce market niches.

Distinct tactics for travel companies

Led by small and large companies alike, including American Airlines, TravelNow.com and various travel agencies, the travel industry is pushing its way into e-commerce. According to Jupiter Communications, travel accounted for more than $800 million dollars in online sales in 1997 and is expected to rise to $8.9 billion by 2001.

Some travel Web site operators use the World Wide Web to spur sales in their traditional businesses. For several years, USAirways has provided travelers with flight information to help book flights through their travel agents or directly through USAirways' telephone reservationists. Recently the company has added booking capability-you can now order tickets online through a process USAirways calls Personal Travelworks.

Yet, USAirways doesn't do the back-end processing of its ticketing online. Instead, it depends on Travelocity.com, the online service from SABRE, a division of American Airlines.

Delta, on the other hand, uses a proprietary database to give you flight information and has been providing online purchasing for quite some time. In the past, you could purchase tickets on competing airlines using Delta as the booking agent, a practice you wouldn't have found at the USAirways Web operation and one that Delta seems to have given up recently.

Attracting prospects, auction-style

Matching buyers with sellers is something the Internet does very well, creating a truly competitive marketplace. Auction Web sites such as EBAY and OnSale have created specialty markets on the Web. In both cases, the companies match buyers with sellers by auctioning off merchandise. The types of merchandise they sell differ, as do the way they auction and deliver orders. Both receive millions of bids. The net result is that everybody wins. Sellers find a ready market for their merchandise. Careful buyers usually get bargains. And these auction houses win big, too.

Started by two people in 1995, EBAY issued its initial public offering in September 1998, raising more than $62 million. OnSale, publicly traded since April 1997, posted $89 million in revenue during the first six months of this year.

Enabling technology: changing the future

While companies have experimented extensively during the past few years, the market has proven fruitful, not surprisingly, for those with solid traditional business plans and a keen focus on their markets. Yet new technologies will throw new wrinkles into e-commerce, allowing even more companies to enter the market. Faster lines and more capacity will have a dramatic effect on what companies can do with e-commerce operations. Streaming media for audio and video will make it easier to interface with customers. And agent technology will help customers search for the right products at the right price.

Getting in on the action

It sometimes seems that everybody has beaten you to the punch and it's too late to get into the game. But that's really not the case. The opportunities are just starting to be realized, and companies are finding more opportunities to create defendable positions such as that of Amazon.com. But it doesn't happen magically (no matter what some ISPs and Web designers tell you.) It happens by creating a solid business strategy and executing it intelligently.

Here are a few key points:

  • Stick to your knitting. You'll have a much better chance of success if you launch your e-commerce operation in a business area in which you're already an expert.

  • Put business issues before technical issues. As in other business forays, it still needs to be a solid business idea to make money. Once you've determined the idea makes sense, use the appropriate technology to execute it.

  • Target your market. It's very easy to become enamored by the millions of prospects at your fingertips. But face it. Most aren't really prospects. Once you've honed your idea, spend your efforts getting to the right people, not just getting to many people.

  • Trust your instincts. If you've selected a market y ou know, your instincts should serve you well. Don't ignore them just because the technology is shiny and new. People still buy for the same reasons as always:

    • because they need the product or service;

    • because the timing is right;

    • because they trust you;

    • because they want to buy from you.

  • Don't give up control to your Web designer. A good Web designer will help you reach your goals and create a Web site and back-end operation that supports your activities. Unfortunately, many Web designers have little or no business background, so they create beautiful Web sites or technologically sophisticated behemoths instead of the sleek business attraction and processor you need. You probably know your business better than the designer, so you should call the shots. And do it with a Web designer who works within those parameters.

The bottom line is that a solid strategy and a properly executable set of tactics will help you increase your business with e-commerce.

David Radin is the creator and host of Internet Insider with David Radin. He has been in the computer industry for the better part of two decades. He has been using the Internet since the 1980s and has been involved in the launches of several important Internet products and services. Radin was the very first presenter at the first-ever Web World international conference, and co-chair of several well-known conferences, including Internet Expo and Sales Force Automation. He is on the board of advisers of several others.