Consumer Applications Growing but Business-To-Business Sales Set the Benchmark

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In "Web Commerce: Building a Digital Business," released this month, Ad Age Interactive Editor Kate Maddox looks at strategies for setting up electronic commerce, from software selection to marketing tactics. The following excerpt examines the state of Web commerce today.

As corporations are now discovering, the Web is having a profound impact on how they conduct business.

With its open-platform based technology and ubiquitous reach, the Internet is allowing companies to open up new distribution channels, forge communities of buyers and sellers, increase revenues and boost the bottom line.

In ways unimaginable just four years ago, corporations are utilizing Internet technology to set up electronic commerce bus-inesses and successfully conduct trade over the Internet. Here are just a few examples:

* Cisco Connection Online, a business-to-business commerce site, is now selling $11 million in networking equipment a day, at an annual rate of $4 billion -- roughly 45% of Cisco Systems' total revenue (see p. S-24).

* Dell Computers is selling $5 million day, at an annual rate of $1.8 billion, from its Web site.

* Microsoft's Expedia travel service sells $4 million a week, or more than $200 million a year, in airline tickets from its site.

* NECX's online computer store sells $5 million worth of computer-related products each month over its Web site, about $60 million a year.

nTicketmaster sold $35 million in tickets on its Web site in 1997, roughly 3% of its total ticket sales; in 1998, it expects to sell about $90 million in tickets from its site.

* 1-800-Flowers generates $30 million a year, roughly 10% of its total sales, on the Internet.

Forrester Research projects that by 2001, online retail revenues will reach $17 billion, while business-to-business electronic commerce will generate $183 billion.

What are people buying online? According to Forrester, sales of computer products will generate nearly one-third -- or $2.1 billion -- of total online shopping revenues of $6.6 billion. The No. 2 online pur-chase item, according to Forrester, is travel, followed by entertainment, apparel, gifts and flowers, food and drink, and other products.

New York researcher Jupiter is even hotter on travel. (See p. S-14 for related retail research data from Jupiter.)

It predicts that by 2002, travel will ac-count for $11.7 billion out of a total $40.6 billion in Web trans-action revenues.

Based on findings from a CommerceNet/Nielsen Media Res-earch survey, the No. 2 purchase item for those actually buying online now is printed materials such as magazines, books and newsletters, while for those just looking for product information online before making a purchase, the No. 2 category is information related to automotive purchases.

IRRESISTIBLE PRESSURE

While everyone has a different take on which industries are best positioned to capitalize on electronic commerce, it's becoming increasingly clear that just about every business must be looking at whether they should be implementing an electronic commerce strategy.

In its January 1997 report "ECS Scenarios," the Gartner Group projects that by 2000, 60% of worldwide enterprises will be engaging in some form of electronic commerce. Says Gartner analyst Barbara Reilly:

"By 1998, the largest obstacles to commercial development of the Internet will have been resolved, and the pressure for every business to get on the Net will be irresistible."

There are lots of ways at looking at Web commerce, and depending on what kind of business you're in, you'll want to develop a plan that works best for your unique operations, whether you're selling candy or routers.

NOT REALLY A NEW IDEA

"What's interesting about electronic commerce is, it's not such a new idea," said Brian Kirk, senior manager of information, communications and entertainment at consulting firm KPMG Peat Marwick LLP. "The Web has given it a sexy currency."

Kirk believes the real benefits that Internet-based technologies will provide in the near term are linking trading partners in a supply chain and automating business processes to make their transactions more efficient, including delivery services such as Federal Express offering electronic tracking services to business customers, and retailers such as Wal-Mart hooking up over private or public networks to the inventory and ordering systems of suppliers.

REAL BENEFITS

Other analysts, consultants and business professionals agree that the real benefits of Web-based and more broadly defined electronic commerce-based technologies will be to the business-to-business sector, as demonstrated by companies such as Cisco Systems, which are now making billions in this niche by selling directly to other businesses over the Internet.

In fact, those companies now conducting business-to-business commerce argue that misinterpretations about electronic commerce and Web commerce will hurt the industry in the short term.

RED HERRING

"Consumer commerce has been a red herring," said Chris Sinton, director of Cisco Connection Online [in 1997]. "With all there is in the media about ordering books, wine and flowers over the Internet, businesses are sitting out there not figuring out ways to really utilize the technology."

Cisco, a networking equipment manufacturer, obviously has a stake in the business as it tries to sell its products to big companies that are spending tremendous amounts of money to create huge systems linking buyers, sellers and other third parties through complex networks.

But the truth is, consumer commerce sites such as online bookstore Amazon.com, wine merchant Virtual Vineyards, 1-800-Flowers and hundreds of other online merchants, are doing . . . business on the Web, and their models are certainly valid. And for businesses that don't have millions to spend and want to reach larger audiences, there are many low-cost ways of setting up online shops, through third-party providers or low-cost catalog software.

DOING THE UNEXPECTED

Case in point: Caribbean tour operator Horizon Tours (www.

horizontours.com) in Washington, which wanted to put its business online but didn't have a lot of money to spend. What it ended up doing was not at all what it set out to do . . .and the company is still not making significant money on the Web.

However, it is only spending about $700 a month to experiment with online commerce, and it broke even after two years. The important thing learned by Horizon is that the Web represents a way to expand business and create entirely new selling models.

However, business executives that have pursued a certain model are sure that theirs, and few like it, are the only ones worth merit.

"There will be very few models that work," emphatically states Henry Bertolon, president and CEO of NECX, an independent distributor of semiconductors and computer products whose NECX Web site is selling $5 million a month online.

He says there's room for consumer and business-to-business commerce, but only for certain models:

* Niche products with high margins and low volume.

* Niche products with low margins and high volume.

For the first model, Bertolon gives the example of hand-knitted Afghan sweaters being sold over the Web, and for the second model, he uses his own business as an example: Selling semiconductors, computers and networking equipment in a vertical value-added network to manufacturers and corporate IT [information technology] buyers.

Remember, there is no one way to do this. Web commerce is still in its infancy. The companies that have started down this route are still learning lessons and figuring out what makes sense for them. The important thing is to get started now, before all your competitors figure it out.

"Web Commerce: Building a Digital Business," by Kate Maddox with Dana Blankenhorn, is published by John Wiley & Sons, New York. For more information go to (www.wiley.com).

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