E-Commerce Myths and Reality

Yes, putting up a Web site is easy. And putting up a Web site to handle commerce transactions is pretty easy, too. But add words like effective, scalable, and successful, and it gets a lot harder. Setting up E-commerce is not easy or fast. Performance and scalability are the biggest issues. Even if a provider of E-commerce goods and services rigorously follows the key factors to devise an exemplary e-commerce strategy, problems can still arise.

Unfortunately, many e-traders assess the situation in the electronic market wrong from the very beginning. Therefore, they fail to understand customers, why they buy and how they buy. Even a product with a sound value proposition can fail if producers and retailers do not understand customer habits, expectations, and motivations. E-commerce could potentially mitigate this potential problem with proactive and focused marketing research, just as traditional retailers may do.

Failure to consider the competitive situation can lead to lamentable result too. One may have the will to construct a viable book e-tailing business model, but lack the capability to compete with Amazon.com. It is hard to predict the environmental reaction to the emergence of the new business on the Net, but still it is worth trying. What will competitors do? Will they introduce competitive brands or competitive web sites? Will they supplement their service offerings? Will they try to sabotage a competitor’s site? Will price wars break out? What will the government do? Research into competitors, industries and markets may mitigate some consequences here, just as in non-electronic commerce.

If existing reporting and control relationships do not suffice, one can move towards a flat, accountable, and flexible organizational structure, which may or may not aid coordination. Thus, failure to coordinate is another big problem.

Some of the Internet traders simply fail to obtain senior management commitment. This often results in a failure to gain sufficient corporate resources to accomplish a task. It may help to get top management involved right from the start. Lack of employee commitment is no good either. If planners do not explain their strategy well to employees, or fail to give employees the whole picture, then training and setting up incentives for workers to embrace the strategy may assist.

Setting up an e-commerce venture can take considerable time and money, and failure to understand the timing and sequencing of tasks can lead to significant cost overruns. Basic project planning, critical path, critical chain, or PERT analysis may mitigate under-estimation of time requirements failings. Profitability may have to wait for the achievement of market share.

Poor follow-through after the initial planning, and insufficient tracking of progress against a plan can result in problems. One may mitigate such problems with standard tools: benchmarking, milestones, variance tracking, and penalties and rewards for variances.

Becoming the victim of organized crime is easier today than it might seem. Many syndicates have caught on to the potential of the Internet as a new revenue stream.

In addition, today there have emerged several myths about on-line business. Here are the most widespread of them. Many people believe that E-commerce is cheap. Perhaps it is when compared with a full-blown enterprise resource planning implementation or the purchase of a mainframe. But for a number of reasons, a full-scale online commerce effort is never a low-cost proposition. Business-oriented commerce server software, such as Microsoft Site Server Commerce Edition, may start as low as $5,000, but that is just the first building block in a complex undertaking. Companies spend an average of $750,000 just for the baseline technology, according to a Gartner Group survey of 100 commerce sites. Then there are marketing costs and other non-IT infrastructure investments. Amazon.com, the paragon of E-commerce success, lost nearly $25 million on $153.7 million in revenue in the third quarter, and marketing costs were a big reason. Is Amazon gaining new customers from its marketing investments? Absolutely. Its revenue was up 337% from the year-ago period, and the company’s stock price is up about 1,000% since its initial offering in May 1997. But the company is losing money – lots of it – proving the point that E-commerce is not cheap.

Another aspect of the level playing field myth is the assertion that the Internet gives small companies instant access to global markets. Access is one thing; leveraging it is quite another. Large physical-world companies have a huge advantage in overseas markets if they leverage their brands online, whether they are Boeing, Eastman Kodak, or Pepsi. There is a low barrier to doing E-commerce, but a very high barrier to becoming one of the leading choices.

And the most important thing. Doing business over the Internet the e-tailer must be ready for the unexpected all the time. Too often new businesses do not take into account the amount of time, money or resources needed to complete a project and often find themselves without the necessary components to become successful.

E-commerce is anything but a myth. It is a major trend that is reshaping businesses and the IT that runs them. But there’s a common theme that runs through each of the myth dissections above: E-commerce, in almost all cases, doesn’t change some fundamental rules of business. Doing business on the Web successfully takes capital, innovative leadership and execution, marketing shrewdness, perseverance, and the intelligent application of IT. As the Internet continues to speed the pace of change in the coming years, many aspects of business will be altered and transformed – but those guiding principles will always remain.