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by Venkatesh Shankar, Ph.D.

It is estimated that by 2002, in the United States alone, more than $300 billion in transactions will take place through the Internet. Is your organization ready to reap the rewards e-commerce can bring?

Electronic commerce or e-commerce is an important buzz word these days. One can hardly find a single issue of a business journal or magazine that does not mention it. What is e-commerce ?

Although its exact definition is debatable, e-commerce, in the broadest sense, includes all business activities involved in the development, facilitation, and implementation of business communication and transactions through the electronic medium, primarily consisting of the Internet, Intranet, and the Extranet. The Internet is the ubiquitous online medium that seamlessly connects all of its users worldwide.

The Intranet is a restricted version of the Internet within a group of users (typically an organization) that is protected by information firewalls. The Extranet is a closed online medium connecting two or more organizations (e.g., buyers and suppliers).

Why is e-commerce important for managers? E-commerce is rapidly growing in size and importance. According to a recent forecast by Forrester Research, a leading technology consulting firm, e-commerce is expected to grow from $4.8 billion in 1998 to $327 billion in 2002 in the United States alone. America Online, the world's largest online service provider, recently reported record $1.2 billion sales in online shopping by its customers in the United States during the 1998 holiday season. Interestingly, among e-commerce transactions, busi-ness- business transactions dominate business- individual transactions in value by nine times. Therefore, e-commerce is of major importance in business-business markets.

Benefits and Drawbacks

What are the benefits and drawbacks of e - commerce for organizations? There are several benefits. Selling on the Internet typically involves lower transaction costs. For example, Cisco, the largest maker of routers and connection equipment for computers, saves millions of dollars by selling its products to user organizations through the Internet. E-commerce allows customization of products and prices to a certain extent. Dell Computer, an enormously successful online and direct marketer of PCs, whose stock has doubled annually during the past three years, has customized offerings for home offices, small businesses, large businesses, and educational institutions. Because online shopping is faster and more convenient, it can also induce shoppers to buy more often.

, the biggest virtual bookstore, has seen its average customer order grow steadily. There are drawbacks to e-commerce as well. It may induce customers to search more for better prices. For example, air travelers constantly seek bargains on the Web. E-commerce, if not implemented well, may alienate traditional distribution channel members who fear that they will be replaced by the online channel. Overall, the benefits appear to outweigh the drawbacks. More over, whatever the drawbacks, as e-commerce slowly becomes a customer need and a com-petitive necessity, non-participation in e-commerce may not be a feasible option for many organizations .

Evolution Within Typical Organizations

How has e-commerce evolved in organizations? Organizations seem to go through four phases. In Phase I (which I call the "Web Presence" phase), the technophiles or the Information Technology (IT) folks pester the top management until they get to build a Web site for the organization. The Web site is usually a "no-frills" site with basic information about the company and its products. The purpose is marketing enhancement, i.e., to make the stake-holders of the company aware of the products and business activities. In Phase 2 (which I call the "Web Service" phase), the Web site is ready for cus-tomer service — responding to product and service inquiries. In this phase, marketing typically wrestles control of the Web site from the IT department. The Web site becomes a digital replica of the marketing department. Most companies are still here. In Phase 3 (which I call "Web Transaction" phase), companies get their Web sites ready for transactions. In Phase 4 (which I call "Integrated Web" phase), firms develop Extranets with important members in the value chain and include their Intranets in their overall e-commerce strategy. According to a recent survey of the top 50 U.S. Web sites by Netmarketing, a leading publication about e-commerce, only 42 percent of the organizations are in the Integrated Web phase, while most of them are in Phases 2 and 3 (see Table above).

USES OF WEB SITE AMONG
THE TOP 50 U.S. WEB SITES*

Marketing enhancement (Phase 1) 100%

Customer service (Phase 2) 100%

Customer lead generation (Phase 2) 96%

Product distribution (Phase 3) 78%

Order acceptance (Phase 3) 50%

Order and payment acceptance (Phase 3) 48%

Intranet/Extranet integration (Phase 4) 42%

* Figures represent percentages of organizations
Source: Netmarketing 1998

However, firms are fast transform i n g themselves in e-commerce evolution. What the Future Holds What has been the impact of the Internet on business practices? The impact can vary f rom a complete transformation of existing business to just a peripheral effect on current operations. For example, Marshall Industries, the largest global distributor for industrial electronic components and product supplies and rated the No. 1 Web site by Netmarketing, views e-commerce as having radically changed its business. Says Rob Rodin, its president & CEO, "With proliferation of bandwidth, globalization of competition, and change of product life cycle to a build-to-order cycle, we decided to create an enterprise design, a piece of that being an Internet site."

What are the likely future changes in e-commerce and Internet marketing? Transactions-enabled Internet sites, Intranets, and Extranets will continue to drive growth in e-commerce. There will be greater integration of Web sites with backend customer databases and other business information systems. With the problems of bandwidth and aging operating systems slowly receding, companies will expand their marketing by offering front-end capabilities to serve the customers. Companies will shift from a vertical to a horizontal orientation on their Web site. That is, the Web site will be transformed from being a vertical slice of the marketing pie to a horizontal cross section of the entire business with an enterprise-wide focus on the customer. In the medium-term, companies will mine a wealth of customer data to make micromarketing decisions at the individual level. Toward this end, firms are increasingly requesting site visitors to register themselves.

What will be the key managerial issues and questions about e-commerce in the future? These include: How can Web sites be more personalized and customized? How will existing business processed be transformed? Should a firm's Internet business be a stand-alone profit center? Will customers become more price sensitive, forcing firms to compete on price on the Internet? Should firms push their products on the Web or work on customer pull to meet demand and deliver products? E-commerce will fundamentally transform the way businesses compete all over the world. It presents a great opportunity for firms to increase their global presence and be competitive. Successful companies will be those that can seize the initiative and march ahead of their rivals in e-commerce activities.

Hilari Graff
(516) 594-4100
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