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Audience: Business professionals, information business and technology professionals, business and computer consultants.
How companies have been successful in e-commerce
E-commerce business models
Gaining the competitive advantage
Redefining the business process
* * *
The past few years have ushered in enormous changes in the way companies are doing business, selling goods and services, and communicating with their suppliers and buyers. The large brick-and-mortar companies are rethinking their business models in order to compete in the new marketplace. Small electronic communities enter the market with innovative ways to sell their goods and services. This is a time of remarkable opportunity for those businesses that harness the power of the new market. namely electronic commerce. Those companies that underestimate its power may be left behind, as other companies flourish in the new environment.
Electronic commerce will play a major role in the way small, medium, and large companies conduct business either with their consumers, other businesses or both. It is critical to understand the e-commerce market early in the game and to understand how e-commerce changes yom business model. Now is the time to reconsider the way you are doing business and how you should approach the new global electronic community. Your competitor is thinking about this very thing.
Now is also the time for entrepreneurs and smaller businesses to compete on the same playing field as larger corporations. In the electronic community, a lack of real estate is not an obstacle. A lackof vast resources, such as employees and capital, is not an obstacle. Your ideas, innovation, and drive carry your ideas forward. Most of the top-selling e-commerce companies are less than five years old. Your focus remains on generating the right idea at the right time. Think of a time that you did something right. What was the result? What was the reward? The inherent beauty of electronic commerce is that when you do one thing right, you get paid over and over.
The objective of this chapter is to provide you with the foundation required to understand e-commerce and how your business fits into the current marketplace. Emphasis is placed on business models, direct selling models, and the key factors required to successfully deploy an e-commerce solution. As you read though this chapter, consider your current business model and how electronically enabling your enterprise, of whatever size, provides direct benefits to your customers and business partners.
Technology Growth Rates
Many individuals and business leaders may be thinking that "the Internet won't change my business." Consider the growth of technology illustrated in Figure 1.1. With the Internet's explosive growth, doubting individuals may want to think again.
We have just witnessed the birth of e-commerce. Now, consider its rate of growth. Consider the not too distant future. People are accessing the Internet today primarily with a desktop computer. In the near future, that will change, especially in the consumer market. With products like Web TV becoming increasingly popular, consumers are able to sit in their living rooms and shop in three-dimensional malls, make travel plans by viewing resorts and accommodations online, and order educational videos on the topic of their choice. Of course, we will continue to use the computer to access the Internet. However, with Web TV and other less traditional means of Internet access, your business can capture audiences that generally have not grown up with computers and Internet technologies. Furthermore, as worldwide communication links and traditional Internet access grows, markets will explode.
Winners Think Outside of the Box
Selling on the Internet is not just creating a Web site and thinking "if I build it, they will come." Companies jumping on the next wave of marketing and sales via e-commerce think outside the box. Throw out the old business model and invent a new one.
Those companies that have been most successful and realized the highest return on investment have approached e-commerce using specific strategies. They rethink revenue streams, reengineer the business, empower customers, provide exceptional customer service, and join the global economy. Let's take a look at these five strategies to selling online, and how your company can take advantage of new methods of doing business.
Rethinking Revenue Streams
Companies approach e-commerce from every angle. A variety of methods of selling are being used in the Internet arena. For example, companies generate revenue from direct sales, online advertising, subscriptions, and credit card processing. Companies receive percentages of every online Internet transaction. Commissions are earned for matching buyers to sellers. Goods and services are auctioned online. Companies that generate revenue from direct sales include Charles Schwab and Dell. Companies that generate revenue from online advertising include Onsale.com and Yahoo!. The Wall Street Journal and TheStreet.com use a subscription-based model. VeriFone and CyberCash (credit card verification vendors) use transaction fees as a foundation for their businesses. Digital River and Beyond.com use electronic product delivery. Commissions for matching buyers to sellers compensate Realtors, as well as vendors whose sites feature clickthroughs to online stores, including Amazon.com.
To start on the journey, think about new streams of revenue. As you work through the book, you will see a whole new way of doing business and increasing your markets.
Reengineering the Business
The Internet promises to change your whole manufacturing process, allowing you to communicate instantly with suppliers, partners, and customers on a worldwide scale. The Internet requires an even bigger effort in business transformation, business reengineering. It is not enough simply to set up Web sites for customers and partners. To take full advantage of the Internet, companies reinvent the way they do business, changing how they distribute goods, and how they collaborate within the company and with suppliers.
Reengineering projects may be complicated, especially in the area of e-commerce. Since e-commerce is not merely a technology-based effort, it requires redefining marketing, sales, services, and products. In addition, it requires interactions between suppliers, shipping companies, legal departments, governments, and banks. It requires integration with existing systems either within the organization or between two companies. Successful companies have included marketing, sales, ordering, distribution, procurement, customer support, and trading partners in reengineering efforts. In addition, they have developed solutions that provide complete and timely reference data to company decision makers for marketing, product planning, production, and the logistics planning process.
The Internet provides a venue for buyers to have the most choices and best prices for products ranging from books to artwork. Even in business-to-business commerce, vendor malls allow buyers to purchase goods at the best prices.
Traditionally customers were limited by time, information and ability (distance) to find goods at the best prices and quality. Today, however, with a click of a mouse, customers are able to gather information about features and pricing, and perform comparison shopping with little effort. The result is the empowerment of the consumer, the driving force in the sales process.
Consider the traditional automobile purchase, which involves driving lot-to-lot, pushy salesmen, right price, wrong color, right color, wrong price. What if you could shop from home? One company that empowers its customers is Automall.com. This company functions as a virtual "one-stop shop" for its automotive enthusiasts by providing links to consumer information, manufacturers' sites, parts suppliers, financing and insurance services, and automotive accessories. Nearly 5% of all cars are sold on the Internet through sites such as www.automall.com.
Providing Customer Service
Customer service plays a critical role in e-commerce. Since e-commerce is not a market that geographically captures a customer, merchants must be even more creative in providing value-added services, such as online support, FAQ listings, follow-up e-mail messages, etc. The goal is to automate as many customer service processes as possible by leveraging Web technologies. If this is done correctly, your company not only generates cost savings, but also customer loyalty.
Joining the Global Economy
Your site should address the global economy. The Web is not just for the technology savvy. Women, men, and children of different countries, religions, and nationalities are participating in this new market. The bottom line is to make your site represent these areas by considering foreign languages, ease of use, and targeted interfaces. The advent of the global economy provides even more opportunities for those of you thinking about e-commerce to come and join this next wave of success.
E-Commerce Business Models
Industry divides electronic commerce into two main categories: business-to-business and business-to-consumer. It is important to understand these models, since e-commerce is approached differently, depending on if you are communicating with a business or with an individual on the Internet. In this section, we review both of these business models and provide examples of how companies successfully implement e-commerce solutions in both business-to-business and business-to-consumer commerce.
Business-to-business implies the selling of products and services between corporations and the automation of systems via integration. This category of commerce typically involves suppliers, distributors, manufacturers, stores, etc. Most of the transactions occur directly between two systems. For example, suppose that an aircraft company wants to build a plane. The plane requires parts from both large and small suppliers. The goal of e-commerce is to automate the entire supply chain. In this example, we call this automation "supply chain management" (the process of tying together multiple suppliers of goods to create the final product). The top half of Figure 1.2 illustrates a typical business-to-business e-commerce model. The model relates indirect suppliers, direct suppliers, transportation of the supplies, and their entry into the distribution system.
One company addressing the business demands of its suppliers is Daimler-Chrysler Corporation, a major U.S. manufacturer of vans, sedans, Jeeps, and trucks. Chrysler's suppliers of parts, packaging, and technology, now numbering over 20,000, rely on this manufacturer to communicate standards and share critical software applications. With the help of IBM, Chrysler developed and implemented the Chrysler Corporation Supply Partner Information Network (SPIN), an intranet-based supply chain management and support environment for distributing files over the Internet. Over 3,500 supplier locations access the Chrysler SPIN Web site. More than 12,000 users access information such as Chrysler's EDI Guide or QS9000 certification policies and procedures. They can also access dynamic database applications, such as real-time data, procurement analyses, and strategy applications. Productivity, driven by this solution, increased 20% within the first year of operation.
The Internet offers an excellent medium for transferring applications; time-sensitive information, and a variety of large files across a variety of platforms. It allows you to extend your enterprise, communicate with suppliers and buyers, and develop solutions that deliver as much information online as possible.
Business-to-business commerce also takes the form of malls. One example of a virtual mall, QCS, is an electronic community that helps retail buyers collaborate with their worldwide supply chain. While buyers manage their own back-end systems containing product information and transaction data, QCS offers a common interface for buyers to access different suppliers. This form of commerce parallels the retail mall concept and the architecture featured in some business-to-consumer enterprises.
Business-to-business commerce also takes the form of catalogs, another medium developed within business-to-consumer commerce. These electronic catalogs, used for purchases between companies, allow corporate buyers to search for products based on features or price. They present a single interface for individual sellers or multiple sellers of similar products. The primary benefits of these catalogs is their ease of use, flexibility, and easy updating.
The benefits to companies that succeed in business-to-business e-commerce are compelling. Business-to-business e-commerce, if done right, helps your company realize substantial cost savings, increase revenue, provide faster delivery, reduce administration costs, and improve customer service. These benefits result in a substantial return on investment. The most significant benefits are reduced administration, increased time for business, more accurate information, improved response time, and reduced errors.
Less time is spent on pushing paperwork, phone calls, faxes, and tracking all of this information. For example, the typical purchase order costs between $75 and $125 to process manually. With the improved automation that e-commerce offers, that cost can be reduced to about $3.
You can focus on increasing revenue through extending geography, improving sales channels, adding services, and growing market share.
Determining your current stock, shipment status of goods, and total costs becomes timely. Since information is the key to any business success, you can manage inventory on hand, shipment cost and methods, buying patterns, and distribution channels.
With automation, tasks can be performed instantly. If you consider the process of ordering an item, the order typically crosses a few desks, requires user input, and delays the transaction. With system-to-system communication, the amount of time it takes to generate an order can be reduced substantially. Automation reduces errors, because the process remains consistent across repeated transactions.
E-commerce between businesses is expected to be five times higher than business-to-consumer e-commerce. By 2003, Forrester Research Inc. estimates that business-to-business commerce will balloon to $1.3 trillion. Constituting 9% of all United States business trade, and more than the gross domestic product of either Britain or Italy, that's ten times the amount of business-to-consumer e-commerce. By 2006, that figure could represent 40% of all business conducted in the United States.
Business-to-consumer commerce involves interactions and transactions between a company and its consumers. Focus is placed on selling goods and services, and marketing to the consumer. Most people are familiar with the business-to-consumer e-commerce model. Companies such as Dell, Amazon.com, and eBay are becoming household names. Their main focus is to sell to consumers via the Internet. The bottom half of Figure 1.3 illustrates a typical business-to-consumer e-commerce model.
Think of the business-to-consumer e-commerce as the new QVC of selling your goods to consumers. Traditionally companies and small businesses employ catalogs, door-to-door sales people, telephone mail order, direct mailing and storefronts to sell products. E-commerce is the next medium to sell goods, using Web-based technologies. The key is to take advantage of these opportunities and do it right. And for the large corporations, it is time to rethink how you are currently doing business and how are you going to fit into the new global economy of e-commerce.
There are hundreds of e-commerce sites that are very successful in the business-to-consumer market. These companies search for innovative ways to sell products and services on the Internet. For example, a company called Infoseek allows its visitors to search phone books, yellow pages, and e-mail addresses online. Once you have found the person you are looking for, you can send a card, flowers, or call directly using a specific carrier. All of these transactions happen online.
Markets where convenience, pricing, and selection are major buying influences have done extremely well in business-to-consumer e-commerce. Computer software and hardware retailers have performed extremely well in the e-commerce market. Through electronic commerce, customers have a greater choice of products at lower prices than what they typically would experience while shopping at major retail outlets. Companies such as Compaq and Dell have added millions of dollars in sales per day. Travel agencies also represent key players in the electronic commerce industry. Consumers can now browse the Internet for the best fares online without having to call several agencies or wait on the phone for quotes from each airline. They can now, with a click of the mouse, search for pricing and dates of airfares, hotel rates, and vacation packages. Other businesses that have flourished include book and magazine retailers, music and video vendors, and retail florists.
Often we are asked, "Where is the personal touch in e-commerce when selling products to consumers?" In today's society, people are looking for convenience. Traditional selling will not be eliminated, just approached differently. Let's say for example that you buy the same t-shirt and socks every year. These items are standard and do not require that you go to the mall and select them. Going to the store may be more of an inconvenience than pleasure when selecting these commodity items. As a merchant, why not put these items online and allow your consumers to purchase these items from home? Customers save time and money. In addition, retailers save time and money. Electronic commerce provides a compelling avenue for selling products to consumers. The key is doing it right. Sell the right product, at the right price, to the right audiences.
Business-to-consumer e-commerce sales provide extraordinary opportunities for most corporations. Businesses have the opportunity to sell products and services 24 hours a day, to reduce costs associated with retail space, personnel and supplies, and to increase market share. Small businesses can play with the big boys. The most significant advantages include higher visibility, branding opportunities, direct revenue generation, attraction of new customers, and worldwide exposure of the business.
E-commerce provides an additional or even primary venue for companies to advertise goods and services. The limitations placed on traditional selling of goods by location have been virtually eliminated. The Internet is a worldwide marketplace and should be approached accordingly.
E-commerce allows you to create your own image or change the public perception of your company. What will distinguish your e-commerce storefront is your creativity in presenting a storefront that is appealing to your customers worldwide. Some of the biggest successes on the Internet are less than five years old and have branded themselves as household names. They have focused on marketing, customer service, site design, and selling products and services which keep their customers coming back for more.
E-commerce, with 24-hour sales and support, improves revenue by featuring a store that never closes. E-commerce truly incorporates the concept of making money while you sleep. You do not have to physically be available 24 hours a day even if your customers are buying 24 hours a day. Isn't that a refreshing change?
E-commerce reaches customers beyond your traditional marketplace. This is the opportune time to start expanding, not your typically brick-and-mortar storefronts, but your presence on the Internet. As more and more consumers get online, they will be looking for your products and services. Capture these new customers by deploying a strong and compelling e-commerce solution.
E-commerce enables 24-hour support. A Forrester Research, Inc. study of financial institutions estimates that Web service costs companies just four cents per customer on average for a simple Web page query, vs. $1.44 per phone call. Shifting service to the Internet, notes Forrester, could allow companies to handle up to one-third more service queries at only 43% of the cost. This not only saves you dollars, but provides additional convenience for your customers to get the help they need immediately.
E-commerce generates a global customer base. One location can distribute goods worldwide. Not just a market for your town, state, or country, your company enters the global economy. What a change!
How Businesses Change
Let us take a look at two business models that describe how companies are currently receiving goods from their suppliers and the channels that they use to deliver these goods to the consumer. These models provide a basis for understanding how your role, whether you are part of a large company or have a small business, may change as industry moves rapidly towards the e-commerce model. Each company will be dramatically affected by their revised business model.
Traditional Selling Chain
Traditionally, selling to the ultimate customer (the consumer) has required that suppliers and manufacturers send the goods to the distributors. The distributors in turn sold the goods to the wholesalers or resellers. Finally, these goods are sold to the ultimate consumer. Each person in the chain added their service fees to the products. In the end, the costs and time spent on the product increased dramatically as each entity in the chain handled and distributed these products. The diagram below (Figure 1.4) illustrates the traditional selling chain.
Direct Marketing Selling Chain
Direct marketing strategies break the traditional selling chain. Suppliers and manufacturers can bypass a variety of intermediates in order to sell directly to the customer. Note the difference between Figure 1.4 and Figure 1.5. Industries such as airlines (selling tickets without travel agents), online bookstores (selling books without traditional brick-and-mortar components), stock brokers (processing transactions online), and computer manufacturers (offering hardware and software via the Internet) have moved toward this model of selling goods on the Internet. Not only have they realized cost savings through this model, but have passed these savings to the consumer.
A word of caution, remember that intermediates do add value to products through their specialized services. These added values might be lost or reduced within a disrupted selling chain. Determining where value is added in the selling chain enables companies to maximize the value of the selling chain disruption.
In reviewing these two models, determine how your business fits in this new market. Although the resellers and retailers are still selling goods online, this may change as suppliers and manufactures find venues to start selling to their ultimate customer, the consumer. As e-commerce changes traditional selling, think about how your business will change.
Gaining Competitive Advantage
How do I get started? This section provides a starting point for determining how your business fits into the e-commerce economy. Keep in mind when deploying an e-commerce solution, that it is important to understand your business before thinking about the technology required. E-commerce is not a technology-driven business. E-commerce simply amplifies business. E-commerce is one of the first areas in which a business can gain a return on investment by deploying a sound solution. And this return can be substantial.
In the deployment chapter, we cover the entire design, development, and deployment process from defining the vision statement to deploying the technical e-commerce solution. However, to get you started, this section provides the basis for developing an e-commerce strategy.
To get professionals started in thinking about ways to use e-commerce in their companies or for private business, we offer two exercises. Take out a piece of paper and a pencil. These two objects form the starting point for your e-commerce solution (whether for your company or your personal use). In addition, as you work through the book, keep a notepad nearby so you can continue to build your solution.
The first step to building an e-commerce solution is to determine your vision, goals, and strategies. Once you know where you are going, brainstorm on ways to get there. At this point, do not think about the technology. Instead, think about how you can take advantage of the Internet to sell your goods and services. It is now time to think outside of the box.
The vision statement sets the tone for the entire project. It must be compelling. For example, one company wants to develop a one-stop shop for exotic hardwoods. Another company wants to harness their current strengths by selling training materials online. Unless your plan calls for you to compete only on price, try to find a niche that completely integrates your dreams with your offerings to the world.
If you struggle with the concept of a vision statement, perform the first exercise. Spend the next week or so carrying around a notepad. Every time you experience something inconvenient, whether you are at work, at home, or at play, write it down. Study the problem. Can it be addressed by harnessing the power of electronic commerce?
Goals and Strategies
A goal is a measurable account of "what" you want. A strategy is a technique for achieving your goal. Set your goals for the e-commerce solution and define specific strategies to attain those goals. Goals and strategies are required in order to help ensure that you live up to the vision statement. Furthermore, when you are defining your new methods of marketing and sales, you can map all decisions back to the specified goals and strategies.
Now it is time to think outside the box. Develop a plan that moves you toward the company vision, goals and strategies. Use the second exercise as a basis for defining your e-commerce solution. You may also want to refer to the project deployment chapter to further define your plan as you read through each chapter in the book. The key to the exercise described in Table 1.1 is to consider your competitors, your suppliers and customers, and your current business process. How are your competitors, direct and indirect, doing business electronically? By researching the efforts of the competition, at least you establish the minimum expectations for the solution. List your suppliers and buyers. Determine how the business currently sells goods, provides services, and markets its wares, in either case.
Redefining your Business Process
Consider new ways of conducting business in the e-commerce arena. How can we address these areas more creatively, more efficiently, and more consistently? Answer the questions posed in Table 1.2 with a focus on your revised business process.
After you have redefined your business process, match the new process to your vision and goals. It is critical that your new business model is in line with your corporate goals and strategies. In order to maintain the integrity of your solution, do not expend energy in areas that do not add value. Often companies head in a direction that does not add directly to the their bottom line. By mapping your new business process to the corporate vision, goals, and strategies, you ensure that each new process brings immediate value to the company.
Sales and Marketing
Posted May 4, 2000
The E-Commerce Book: Building the E-Empire helps create the foundation for companies in todays competitive e-commerce world. From the basics to the advanced, it covers not only the technical aspect but also the business side of e-commerce. A must read for those who intend on leaving the competition behind.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted March 10, 2000
There is not a whole lot of information that speaks to what e-commerce is, where is it going, and what you need to do to be sucessful in todays e-commerce world. This book puts a good framework to start.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted February 22, 2000
Misinformation in technical arena and from business perspective, poor business case studies. This book can't decide what it wants to be, technical or business focused. (See related titles below that pass the muster) Unfortunately it fails in both arenas.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted February 21, 2000
Upon reading this book, I discovered it lacked SUBSTANCE. There isn't anything new. I've read SEVERAL books that are much more insightful and actually work in the real-world of e-commerce.(many business cases and technical solutions ABSOLUTELY DO NOT work!) I found reading this book to be a FABULOUS way to fall asleep at night. It is a wonderful way to throw your money away and walk away without knowledge of e-commerce. Steer clear, and stay smart.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted February 4, 2000
This book provides a very useful and understandable overview of the various aspects of setting up an E-Commerce business. It helps the reader indentify the tasks that must be completed in setting up an effective E-Commerce site. The reader will be more knowledgeable when they select the service providers and software packages needed for an E-Commerce business. The discussions of specific E-Commerce companies provides many starting points for additional research about the topics presented in the book.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted December 13, 1999
This book provied no more information than what I got out MS Press books for a fraction of the cost. You would better served reading white papers from MS and IBM. SMU uses this book to teach thier ecommerce course, which is even a bigger disappointment than the book. Spend your money else where.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.