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E-Commerce Guide's Ask the Experts
January 8, 1999

E-Commerce 101: What it is, where it's going
If you are confused about electronic commerce, you're not alone - even the experts struggle with its exact meaning. In its simplest terms electronic commerce is the process of two or more parties making business transactions via computer and some type of network - e.g. a direct connection or the Internet. This includes business-to-business transactions, online retail, and the digitalization of the financial industry. Some experts and leading Netrepreneurs even argue that electronic commerce includes all the steps that occur in any business cycle, such as placing ads, completing invoices, and providing customer support. The term "e-commerce", often used interchangeably with IBM's coined term "e-business," covers a lot of ground and refers to all these areas.

Background
E-commerce actually began in the 1970s when larger corporations started creating private networks to share information with business partners and suppliers. This process, called Electronic Data Interchange (EDI), transmitted standardized data that streamlined the procurement process between businesses, so that paperwork and human intervention were nearly eliminated. EDI is still in place, and is so effective at reducing costs and improving efficiency that an estimated 95% of Fortune 1,000 companies use it. It was, and is, the foundation of electronic commerce.

Today, electronic commerce increasingly refers to business conducted over the Internet. EDI, for example, is being brought to the Internet and allowing companies to save money by eliminating the old system's expensive private networks and by expanding reach to include more businesses on the supply chain. Other business-to-business transactions are simply moving to the Web without using the standardized forms required by EDI.

But the e-commerce buzz that you hear on the radio, see on TV, and read in the papers and online refers to online retailing -- using the Web to sell goods, services, and information to consumers. Online retailing began four years ago, and was pioneered largely by Internet companies that didn't (and some still don't) perform traditional retail, such as Amazon.com and CDNow. More recently, brand names like Barnes and Noble, the Gap, and WalMart have set up shop on the Net, and many experts believe that these and other brand names will be able to establish long-lasting presences on the Web. Today, all a person needs is a computer, a browser, and Internet access, and he or she can buy flowers, airline tickets, and even a car. Tomorrow… who knows. The sky's the limit.

To date, online retailers have had mixed results: Many businesses have failed to meet revenue expectations, and setting up an electronic storefront is more complicated and costly than many predicted. Also, many "brick and mortar" merchants continue to stay away because they're not confident that the online market is large enough to justify their expenses. Others worry about the process of fulfilling online orders and the level of security the Web offers, especially with credit card transactions.

But there have been more bright spots. More than half of all national companies now have sites that either describe their products or themselves or have true purchasing functionality. And more importantly, sales in nearly every segment have drastically increased each year: 1996's revenues of $600 million, according to Forrester Research, jumped to $2.4 billion last year, and the number of households that are online consumers has reached 7 million, a figure that is nearly double last year's number. Hot areas including computer hardware and software, books, music, and flowers are selling well enough to ensure a long life on the Web.

The Future of E-Commerce
What does the future hold for e-commerce? Many would say it is difficult to predict. The forces that determine the Web's winners and losers are just taking shape and technological advances could add even more uncertainty. On the downside, some experts predict that it will be increasingly difficult for smaller companies to establish their presence. Public companies and traditional brand name retailers have deep pockets and a name recognition that will make it difficult for smaller sites and mom-and-pop shops to attract customers, thereby forcing them to compete with the big boys. On the Net, it's one big neighborhood.

On the upside, nearly all experts believe that overall e-commerce will increase exponentially in coming years. Business-to-business transactions will represent the largest revenue: the eMarketer newsletter and Web site (www.emarketer.com) projects that it will jump to $268 billion in 2002, up from $5.6 billion in 1997. And online retail will also enjoy drastic growth. eMarketer projects a jump to $26 billion by 2002, up from $1.8 billion in 1997. Areas expected to grow include financial services, travel, entertainment, and groceries.

And for those considering opening a virtual storefront, forthcoming technology and standards agreements will make it easier to create a site, to protect it against payment fraud, and to share information with suppliers and business partners. (For an in-depth look at choosing the right electronic storefront software and reviews of e-commerce packages, check out E-Commerce Guide's "Tools for Trade.") The real issue will be the same one that nearly every site struggles with -- getting customers to drop by.