This article continues a series dealing with the practical applications of the Internet in business. This and subsequent months articles will focus on e-commerce, beginning this month with a basic introduction.
E-Commerce is probably the buzzword of the moment - you will see it or hear it somewhere virtually everyday. So what's it all about and why should your business get involved?
A brief history
E-commerce came into being in the 1970s with the implementation of Electronic Data Interchange (EDI); a standard that allowed business transactions to be carried out between computers over networks without the need for human intervention or paper based documentation. EDI was developed as a way for large companies to communicate efficiently with their suppliers, allowing the exchange of purchase orders, invoices and payments over private internal networks called Value-Added Networks (VANs). However, the cost and complexity of EDI meant it was viable for only the largest of companies and small to medium sized businesses were left out in the cold.
The Internet changed all that; it made communication through a global network of computers viable for any sized business because it was simple to use and cheap. Initially, most businesses used the Internet as way of informing their customers, partners, suppliers and distributors about their products and services. After all, the Internet was originally conceived as a communication tool rather than a means of facilitating business. However, this situation is rapidly changing as more and more businesses realise the Internet is not only ideal for providing information but for facilitating ordering, purchasing and payment.
E-Commerce now
So what is e-commerce now? The answer to this really depends on whom you ask. E-commerce to some simply means buying from virtual shopping sites on the Internet. Others will tell you it refers to business processes conducted over private VANs, while some consider it is only e-commerce when an actual financial transaction takes place electronically. Alternatively, many say it is an all encompassing term which covers all aspects of online buying and selling, including marketing & advertising, order processing and customer service.
The real answer is that all of these are different forms of e-commerce, or e-business as it is becoming known, that can be identified by whether they relate to supply-side or demand-side economics. Both types of e-commerce are equally important and must be considered when a company is developing an e-commerce strategy.
The important point to remember is e-commerce is all about improving the way people do business; it is not just about EDI or simply putting a product catalogue on the Internet. It is all about redefining customer relationships and returning to a personalised service in a way that reduces the overall cost of doing business for both you and your customers.
Why are so few businesses doing it?
There are several reasons for businesses being slow to invest in e-commerce. The main issues are lack of knowledge and security concerns. For many businesses, the steep learning curve tends to cause them to shy away from e-commerce, compounded by press coverage of early failures of some online shopping sites. Many of these early failures were caused by companies rushing into e-commerce without first analysing the difference between a real and virtual shop window, rather than the inference that shoppers were not ready for online purchasing. European online shopping sales are predicted by Jupiter to reach $3.2 billion in 2002, as compared to $200 million in 1998 so nervous shoppers are no longer a factor!
Security continues to scare many businesses off, most preferring to wait until standards such as SET (secure electronic transaction) and digital certificates (used for message or payment authentication) have been sorted out and are in everyday use. These standards are a long way down the road to being accepted with trusted third parties such as Royal Mail and BT becoming involved in digital certificate issue. It is, in fact, considered safer to set up an e-commerce site than opening a shop!
Why should my business get involved?
The Internet has created a global, networked marketplace which cannot safely be ignored. With consumer familiarity increasing and concerns over security subsiding, many businesses are restructuring their strategies to take advantage of e-commerce. IDC reported $8 billion worth of business was transacted on the web in 1997 and that figure will grow to $333 billion by 2002, representing 1% of the global economy. You only have to look at the meteoric rise in the value of Amazon online bookshop to realise that some fundamental changes are beginning to occur.
The crunch question is will my business make any money with e-commerce? By the end of 1997, the number of profitable web sites (both consumer and business to business transactions) had increased to 46% after being stationary for 3 years at 30% (ActivMedia). 81% of the remainder expect to be profitable within a couple of years while a quarter of the top 100 e-commerce operations reported annual revenues of $100 million last year.
Conclusion
E-commerce is becoming as inevitable as a credit card in every wallet and is no longer limited to big business. Any business with a computer and an online connection combined with a well thought out e-commerce strategy can make their presence felt on the web. Whether you intend to invest in e-commerce now or in the future, you should be assessing the impact of e-commerce on your business and developing an e-business strategy without delay. Exponential growth of e-commerce is predicted for the year 2000; be ready for it.
The next article in this series will consider the advantages of basing your e-commerce business offshore.
