BUSINESS ONLINE '96 (Paris - 23-25 April, 1996
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Last week a group of 150 business leaders met in Paris for a conference
on Electronic Commerce. Here is a report on the two-day meeting.
This article will discuss the explosive growth of technology marketing
recently and look at changes in both the business-to-business and
business-to-consumer models for the online world. The best way of
starting to present this business revolution in a few words might be for
you to read the following quote several times and let it sink in:
"EDI [the standard in electronic commerce] is not a choice.
It is the inevitable way business will be done."
-- MIT 1990's Presence Program
The WorldWide Web has seen an explosive growth: 24 million people
worldwide had access to it (Sept., 1995, according to Netscape). The
U.S. being the most penetrated market, with one-third of all adults on
the Internet. Netscape estimates that 90% of all U.S. companies will
have a Web page (or a site) by the end of 1996. According to recent
statistics, 40% of all Web sites conduct some electronic commerce
(including email, fax, credit card transactions on the Web, etc.), and
12% of the total have the capability for secure Electronic Commerce. The
figures from Arthur D. Little, a major consulting company that is deeply
involved in these issues, point to a growth from $72 M of online
transactions last year (only 5% of companies worldwide are currently
engaged in electronic commerce) to $150-250 B in the year 2000, and
perhaps growing to as much as a trillion dollars by 2010.
Exponential growth.
A typical scenario of the new paradigm in Electronic Commerce might be
the following. A manager looks for an Italian shoe with a particular
design. He will have a file on his computer that contains information
about the size of his feet. He goes to the Internet, to look for a
particular design he likes. When placing his order, the data will be
immediately translated into production data. A manufacturing plant in
Italy gets the data and starts production almost without delay. The
customer gets his shoes by FedEx within a week.
The best successes to date are in the areas of Direct Sales &
Advertising. Virtual Vineyards sells around $100 K monthly, Hot Hot Hot
around $60 K in 1995 (25% of its business), and Tennis Warehouse $15 K
monthly (15% of its business). As for advertising, Netscape charges up
to $30 K/month for banners and HotWired charges $15 K/month. The online
advertising business is a $10 M industry today, to grow to a $2 B area
by 2000.
The last decade has seen business restructuring, which has meant layoffs,
taking up costs in every sense, etc. This process is mainly over. Now it
is time to create a competitive advantage to sell against competition.
The goal with integrating the Internet into a company's business process
is to put at much of the business process on auto-pilot as possible.
Issues that must be integrated in order to unify the world
market and bring one's company onto the Internet are:
- multi-lingual marketing
- multi-lingual order-taking
- multi-currency payment mechanisms (on both
sides: vendor and customer)
- delivery logistics (worldwide)
- multi-lingual after-sales support
Business-to-Business:
Electronic Commerce will fundamentally change and redefine the way we do
business, in the following areas for business-to-business sales:
1) rethinking the value chain
2) accelerating business processes
3) creating transparent markets
4) redefining market boundaries
5) altering the basis of competition: small companies, ÒpullÓ marketing
6) reorganizing the workflow
Sales Channels. The business workflow process will be accelerated
considerably by the use of electronic commerce. We will have to be able
to keep up with this rapid pace in order to stay competitive. Old
business channels will feel threatened, and vendors using electronic
commerce need to give attention there and help old channels make the
transition. From now on, manufacturing and service vendors have to face
customers directly, including all the negative feedback that this
entails. Prepare yourself to give customer service like never before;
customers will become more demanding, and companies will need to manage
their expectations.
"Internet Time". Markets will be penetrated much faster, and the
first movers will be rewarded. The business process is being speeded up so
that responsiveness will be required for the winners in terms of hours,
not days. Suppliers will be appreciated by their responsiveness.
Market Transparency. Electronic commerce will create transparent and
highly competitive markets, where differentiation will be essential to
survive. Companies will have to be able to communicate how they are
different than their competitors. Here is a list of how companies can
differentiate themselves, as market boundaries are redefined:
- easy access to worldwide product information
- direct comparison of features and price
- worldwide payment
- global delivery
- customizing
- global branding
Globalization of Business. The lack of geographic limitations for
electronic commerce redefines what boundaries are: prepare yourself to
go global. Companies will no longer be limited by geography: although
they might be local, they will have a global reach, thanks to logistic
service providers (FedEx, UPS). Products successful in one market can
quickly be sold worldwide.
Re-organizing the business world around the customer. Electronic
commerce will turn the business world upside down. From now on, the
small and agile companies will be able to beat large and sluggish
companies. The business model is also changing, in that marketing is
transformed from "push" to "pull": attracting clients and enticing them
to make an order. "Push" marketing will be refused, and the marketing
model will turn to *responsiveness*. Customers will really become king,
and will have to be treated accordingly if the vendor wants to stay in
business. Customers will no longer accept fixed prices: even price
negotiation will most likely come into electronic commerce more often
than in the physical world in the past. Customers will also become
aware quickly of product strengths/weaknesses and pricing, which are
well-known in the market, and can be quickly determined by forums and
newsgroups. They will demand protection through all-included
warranties, valid worldwide. In the near future, a customer can use
electronic "agents" to look for competitive products and pricing, and
have the results within an hour sitting in his email in-box. The ease of
a customer finding other sources will mean that competition will
intensify between suppliers: a faster market response will be required.
Re-organize the Workflow. Electronic commerce will impact the way
companies work and are organized. There will be another wave of
re-organization (parallel to the recent one in the last decade), this
time concentrating on the lesser need for full-time employees, using
outsourcing on an "as-needed" basis, and re-designing a company's
workflow. A different kind of company will come out of this transition,
with different employees, outside consultants, sources and banking needs.
Business-to-consumer.
However, business-to-business will be the first application of electronic
commerce, followed by business-to-consumer. The consumer businesses will
need longer to take off, and will most likely have a more profound impact
on our lives than business-to-business. Here are some of the issues
involved with online consumer marketing:
- direct customer interaction with the company
- accelerating business processes
- creating transparent markets
- empowerment of the customer
- altering the basis of competition
Studies show the main growth areas of online consumer markets: culture,
entertainment and travel. The average price of an online sale is $25-50
(an item of $50-10 holds second position). A striking example was shown
by MicrosoftÕs implementation of animation and sound for WalmartÕs
online store (Walmart is a large American department store). On the
Walmart Web site, an animated person on the screen helps visitors
through the store, talking to them and trying to be helpful in finding
things - and encouraging sales, showing how to make an online purchase.
This is the next generation of Web sites, incorporating animation and
audio with interactivity with visitors.
In conclusion, the business world has just gone through a
*quantum leap*, with the implementation of new information technologies.
Now we must digest what has happened. This will be a difficult transition,
as companies will be required by market forces to integrate electronic
commerce... or sink. The implications for companies that are too slow in
adopting the new technology are bitter medicine. The "double whammy"
that could occur is the following: if a company does not integrate
electronic commerce, they will have to focus on pricing (which is not
part of a viable business model), and this will consequently keep their
prices higher. Once customers realize how easy it is to find
alternative sources (for what they need to buy) and make an informed
decision (from whom to buy), a company not using electronic commerce
will not be able to stay in business.
The entire business process must be re-engineered to account for this
increased pace. The entire structure has to be changed and the old way
thrown out, as it was developed and based in the industrial age, which
is based on the transfer of atoms. And we are moving to a digital age
(the transfer of bits), the Information Age, as Negroponte described so
well in "Being Digital".
Bill Dunlap
Euro-Marketing Associates
bill@euromktg.com
27 April, 1996
Last revised on 24.8.1996
http://www.euromktg.com/ed/art/busonline.html