$300 Billion by 2002
  Concerns - How Safe
  Dell - Textbook Example
  EC Checklist

In 1992, when widespread discussions of the Internet began appearing in the consumer press, many people’s thoughts about the subject were simple: "This is interesting, and we’re sure it will have some great future applicability. Please get back to us when it does."

Today, electronic commerce (EC) - the use of the Internet to transact sophisticated financial dealings, including consumer purchasing - is in the same boat. People nod in its direction and admit that it will soon be an important thing, but would prefer to have it come to them full-blown: safe, secure, efficient, established.

So, how will EC get "from here to there," from being a coming thing to being an established part of the daily routines of businesses and consumers? In much the same way the Internet did. That is, as a result of purposeful decisions made by companies willing to patiently study and explore EC to determine its potential usefulness.

Many such companies already exist, and they are contributing to a growing literature of real life tests, performance measurements and strong conclusions about EC. Worldwide, there are already scores of web sites dedicated to the topic, ranging from media outlets that have made a major effort to follow the EC phenomenon to manufacturers of secure electronic funds transfer software, to industry and political groups attempting to stake out significant territory in what they sense is the next great development in modern commerce.

Closing in on $300 Billion by 2002?

EC in the U.S. approached $8 billion in 1997 - up 1,000 percent from 1996 - according to Cambridge, MA-based Forrester Research. But that figure is poised to begin an almost literal vertical ascent: The company predicts that online U.S. business transactions will reach $327 billion by 2002, (a 4,000 percent increase in less than five years.)

Forrester says that manufacturers, such as Boeing and Cisco; middlemen, such as MicroAge and Boise Cascade; and services and utilities, such as QuickTrade and Altra Energy; accounted for virtually all of the $8 billion in 1997’s domestic EC. But once retailers, durable goods manufacturers, suppliers of knowledge services (such as lawyers) and specialty manufacturers making the transition to a commodity approach (see PrintNet) catch on to EC’s efficiencies and money-making opportunities, they will enter the medium massively.

The number of computer users who use the Internet and are thus poised as potential EC users is rapidly growing. CommerceNet, a 500-company Internet commerce industry association, reports that while 58 million people were familiar with and used the Internet in the U.S. in 1997, that figure will jump to 88 million this year, to 110 million in 1999 and to 133 million by 2000.

Concerns That Stand in the Way

Consumers currently have two concerns with EC: security and bandwidth. Are EC transactions safe, in the sense that credit card numbers and other personal financial information cannot be filched off the Internet by hackers with criminal intent? Concerns with bandwidth are simple: current modems are already skirting the outer limits of their technology and phone lines seemingly cannot handle large packets of data. There seems to be little prospect that wide-bandwidth technologies like T1 or ATM can soon be offered to individual consumers at anything approaching economical rates.

But current and pending technologies will address those concerns. Generally speaking,

Internet sites that follow acknowledge industry standards for secure transactions are as secure for credit card transactions as any payment method a consumer can use. Even more sophisticated methods for securing sites, such as SET (Secure Electronic Transaction), are in the offing. SET uses a system of electronic locks and keys, along with certified account IDs for both consumers and merchants. Then, through a unique process of encrypting the data exchanged between the shopper and the online store, SET ensures a virtually tamper-proof payment process.

Designated MasterCard members have already completed millions of SET transactions over the Internet, and several pilot programs are underway to further test and refine the SET process.

The recent emergence of DSL (digital subscriber line) technology, which "piggybacks" dense information packets on the back of unused phone line frequencies, has opened the possibility of reasonably cheap, wide bandwidth available to small business users and consumers. (Phone companies are beginning to offer DSL services that features upload/download speeds of 384 Kbps for about $150 per month.)

DSL will entice millions to EC. Its speed will allow inclusion of animation and streaming audio and video, and allow virtual malls to become commonplace. The current need to keep EC web sites graphically spare because of limited bandwidth will go out the door. Business-to-business sites will continue to present a more refined, sober corporate face, but even these will be able to use multimedia to present data. Much of it in a 3-D form.

Once their worries over secure transactions and bandwidth are soothed, consumers see EC as a very convenient proposition. Using a computer to shop is the contemporary equivalent to browsing the old Sears catalogue, with the added advantage of far more colorful graphics and images. But the motive here is not geographic isolation. Rather, it’s as simple as the ability to avoid costly, time-consuming drives to stores. EC can be done from the comfort of home any time of the day or week - EC web sites do not close down at 5 p.m.

A Textbook Example of EC

A prime example of how consumers will pursue convenience is the success of the Dell Computer Company web site (www.us.dell.com), which CommerceNet reports is toting up $3 million per day in sales. The site offers the ability to "construct" a computer to individual specifications, keep a running tab of the cost, then place a secure-transaction order that is almost immediately reprised and acknowledged via e-mail or fax.

For companies offering EC web sites, the key words are convenience and savings. It is far easier - and cheaper - to maintain an electronic "inventory" of images and descriptions than it is to physically maintain dozens or hundreds of retail outlets nationwide with duplicate stocks.

Sometimes the effects can be dramatic. In the March 1998 issue of Internet Computing, a feature story on Cisco Systems of San Jose, CA, cites the company’s web site, Cisco Connection Online, which has processed nearly $2 billion in customer orders over the Internet since October, 1996. The site receives an estimated 3.5 million hits a day, has 80,000 registered users and accounts for about 40 percent of the company’s annual sales. Projections call for $3 billion in orders in 1998.

A key question here is if Cisco is realizing a net savings in its overall cost of sales because of the web site.

Another company, Autobytel, extends "catalogue shopping" into a whole new sphere, namely, car buying. The web site of the California-based company, which operates nationally, not only allows consumers to look over regional inventories of available automobiles, but to fill out full-scale loan applications and begin the auto buying process via computer. The company also offers financial institutions, such as credit unions, the ability to front-end Autobytel’s web site with their own logos and with defaults that move members to preferred loan sources. They are not aware that the service they are using is provided by a third-party, and it is perceived by them as a good value-added service.

Of course, just as all companies 50 years ago could not be Sears, not all companies today would benefit from EC. Rather than conducting business on the Internet, they are better off presenting their businesses on it. Studies note that lawyers and similar providers of abstract non-material services are using web sites to present case studies and analyses that demonstrate their abilities to potential clients. This is not direct EC in the sense of actual money changing hands, but it is an insightful ancillary use of the technology - namely, marketing - to set up future commerce.

• Achieve a market leader position by using the Internet as a strategic business tool, improving time-to-market for the launch of new services.

• Gain competitive advantages by creating a secure, reliable online channel connecting institutions with customers, prospects, merchants, branch offices and employees.

• Increase revenue and profitability by developing instantaneous channels for order taking, SET-capable electronic commerce, information access, customer support, and other sales and marketing functions.
• Improve sales through one-to-one marketing channels with customers and, if desired, private label the entire user experience.

• Significantly reduce 800 number, operational, and labor costs by driving customer transactions to the online solution.

• Offer differentiated services to targeted classes of customers, thus improving communications and increasing loyalty among their most valued customers.

• Employ sophisticated monitoring and reporting tools to fine tune products and services, as well as to gain a better understanding of the customer's preferences.

• Increase retention by creating exit barriers for their clients and entry barriers for their competitors.

• Provide instant access to prospectuses, research reports, and other value-added information, without incurring the expense of printing and mailing.