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New Market Channel Often Misunderstood
Electronic commerce is more than a new way of selling and buying products or services on the Internet. It's about putting together the right infrastructure to meet customers' needs.
The simplest definition of electronic commerce is when something of value has been electronically exchanged for a good or service. Electronic data interchange is a form of electronic commerce, as is a Web catalog or an electronic auction. Most importantly, electronic commerce offers elegant, effective ways to manage supply chains and manufacturing and distribution processes while linking partners, making it easier for customers to do business.
Ultimately, electronic commerce is about relationships, not transactions. Two years ago, Forrester Research acknowledged that electronic commerce was the fourth market channel-right up there with direct sales, indirect sales and inside sales. We agree, but we also believe that electronic commerce will fundamentally change how companies sell. The integration and rationalization of electronic commerce into traditional marketing and selling processes will continue to redefine the role and processes of the three other market channels.
The Internet is used successfully to create profitable, enduring relationships with repeat customers, just as direct sales creates a similar relationship with other customer groups. And this applies to consumer and business customers. The benefits from electronic commerce include not only connecting buyers and sellers, but also interactive one-to-one dialogue with customers, suppressing time and place limitations, and increased revenue at a lower cost of sales.
What are the catalysts? A combination of new technologies coupled with customers demanding more personalized interaction, service and products. The market shift is being driven by the application of emerging technologies to new ways of doing business across multiple business functions. That includes Web-enabling enterprise-wide applications, online customer support, Web marketing in place of traditional marketing, opening up sensitive transactional systems to partners through extranets, etc.
According to a recent Price Waterhouse-Cooper's study of CEOs, 80 percent said electronic commerce will reshape competition in their industries. Market movements on multiple fronts have created a truly dynamic marketplace with new application markets continually forming, being absorbed by other markets or forcing others to redefine themselves. For emerging companies and leaders, staying abreast of these changes can be overwhelming, but it is imperative. Being surprised by a shift can mean missed opportunities, or worse.
A significant challenge for companies in the fast moving enterprise-wide application market is not only identifying market shifts in real time but also determining what they mean in terms of strategy. A good example is the common belief that one added value of electronic commerce is in attracting new customers that traditional market channels could not reach. Not so-most of today's successful electronic commerce initiatives are clearly based on the willingness of established customers to adopt the Web as a buying channel.
Another misconception is that electronic commerce is appropriate for all types of products. Electronic commerce does not play a role in industries where products are very expensive and/or where only a few are produced a year, like million-dollar earth-movers or one-of-a-kind artwork.
In today's early-stage electronic commerce environment, technology is classified as either packaged applications or tool kits. Packaged applications are frequently point solutions that need to be cobbled together with other point solutions and legacy systems. The challenge with point solutions is that they have functional depth but are inflexible. Conversely, broader packaged applications are typically thin in functionality but broad in coverage. Their advantage is that the components are integrated; you just need to build your desired functionality.
Tool kits are used by developers to custom build desired electronic commerce solutions from available frameworks and components. The advantage is a higher degree of flexibility. But it's still custom development. While tool kits are powerful, most companies prefer to purchase packaged applications. Not surprising, tool kit and framework vendors are re-positioning themselves as application providers by rounding out their tool solutions with vertical-specific application functionality. To solidify their movement out of the "tool space" and into the "application space," any of these vendors are adding consulting arms to support implementations and increase their customers' success rates.
Despite all the hype, the electronic commerce market is still young, the domain of early majority technology adopters. Business models are being devised, tested and tossed almost as fast as the technology evolves. The allure of successful electronic commerce initiatives, like those of Dell and Cisco, serves as fuel to keep this market evolving.
Some industry analysts believe that electronic commerce will cease to be an experiment by the end of 2002. The strongest growing electronic commerce market segment is business-to-business, which many observers estimate could reach sales of $400 billion by 2002, reflecting a compound annual growth rate of over more than 100 percent.
While the consumer online retail market has been exhaustively discussed, its growth is slower than the business-to-business market. In fact, it is unlikely that consumer retail electronic commerce will show signs of mainstream adoption until after 2000. And, to put things in perspective, it will probably take five to 10 years before even 2 percent of economic transactions in North America are conducted online.
Christine Crandell is president and co-founder of NBS/New Business Strategies, a market strategy firm.
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