From share trading to shopping, e-commerce is sure to have a massive impact on life in the 21st century, allowing businesses to trade with customers around the world. By Sue Weekes
What is it?
The umbrella term for any business conducted electronically via the Internet. It covers everything from on-line share trading and banking to shopping at an on-line supermarket. Some e-businesses are extensions of existing businesses while others only exist on-line. An NOP survey conducted in August 1999 predicts that e-commerce in Britain will reach £9.5bn this year.
The story so far
The Internet was created 30 years ago but it took the development of the World Wide Web, a graphical user interface created by Tim Berners-Lee 10 years ago, for the world at large to exploit its potential. Arguably, the perfect model for an Internet business is still to be discovered, but many cite the best working example as the on-line bookseller Amazon, set up in 1995 by American Jeff Bezos. Despite being lauded as a success, like many Net businesses, it still runs at a loss.
While 1999 was the year that saw a mass of high-profile businesses establish their on-line presences, it was, more significantly for the long-term future of e-commerce, the year that the public was given the option of free Internet access, spearheaded by the Dixons-owned Freeserve, now the UK’s biggest Internet Service Provider (ISP). This meant Internet users no longer have to pay a subscription to get access to the Internet although they still have to pay telecommunications companies for the time spent on-line. However, even this is changing with a number of deals being struck with ISPs and telecoms companies that sees discounted and even free call charges to the Net at certain times of day.
While there is still a lack of consumer confidence over issues such as security, sophisticated encryption techniques for sending transactional data over the Net are helping to break down this barrier to e-commerce. Targeted marketing by companies such as Egg and Marbles, whose credit cards come with a special Internet guarantee, is also helping.
Sixteen million European users started using the Web this year, says independent research company Forrester, and a report by NOP found that 1.5 million adults in the UK used the Web in the four weeks to June 1999 to purchase products or services, spending £239m in the process.
“Britain will see its economic potential eaten away before its eyes by clever and hungry dot.com start-ups unless it exploits e-commerce immediately. With the Internet, we are witnessing the re-invention of customer relationships,” says Neil Holloway, managing director of Microsoft UK. “All the traditional rules and ways of doing business have changed. The end customer is determining the new rules. Business models across the world will change more in the next 10 years than the past 100.”
A truly global market for everyone and unlimited choice for the consumer. Smaller companies really can compete with the big boys and Forrester claims that northern Europe is closing the e-commerce gap on the US, with a recent report predicting that Europe’s on-line business and consumer trade will grow at triple-digit rates over the next five years, reaching £1.6 trillion by 2004.
Because of its immediacy and the relatively low overheads, start-up times and costs are drastically lower than for a conventional business. “E-commerce is inherently more efficient, it massively reduces the cost of searching for a product, supplier, or customer and so more and more companies which are selling to the next link in a supply chain will be using web sites to allow customers to check technical specs or order products, says Adair Turner, director-general of the CBI.
“For some it will simply be a source of information, leading to a human interface, while for others it will be the means of executing the transaction.” Turner points out that this is crucial for British business in particular, with its large proportion of SMEs – “The most intensive users will be the SMEs because they are typically further down supply chains from major companies, and they are linked in business-to-business relationships with each other. They may not have a strong enough brand name such that everyone has to come and find them, their product may not be unique, and so they have to put that window on the world.”
It can be easy to underestimate the amount of money needed to promote and market a Net business – you can launch an e-businesses relatively cheaply but there is little point if no one knows you are there. Credit cards are the preferred and now promoted method of payment on the Net, but in order to accept credit card details on-line, an e-business needs a merchant ID from the bank. The bank will not issue this unless you have been trading for two years.
There are inherent recruitment problems – the skills-set needed by e-commerce businesses are far removed from that of a traditional job spec. For instance, last month data transfer firm Vio’s chief executive Mike Simmonds packed his bags and left because it had adopted e-commerce as the backbone of its services – an area where Simmonds had no experience. The acceleration of e-commerce had led the company to develop a new business strategy.
The sheer choice of products and services offered to the consumer is causing customers to become more demanding and less loyal and the growth in e-commerce will only intensify this.
Who’s on board
1999 will be seen as a landmark year in e-commerce, witnessing significant commercial events such as the launch of the first Internet-only bank First-e. Prudential’s spin-off Egg also enticed a mass of savers on-line with highly competitive interest rates for a large part of the year. The major high street banks now offer some or the majority of their services on-line and in the money markets, on-line stockbrokers such as Stocktrade and Charles Schwab have opened up the world of trading to a whole new generation of on-line buyers.
On the retail front, the supermarket high street battle has already begun on-line with Tesco, Sainsbury’s, Asda and Iceland all offering on-line ordering and home delivery, while a mass of smaller outlets – from sausage sellers to salt miners – are selling their wares via the Net. Aside from Amazon, the Net has already spawned its own entrepreneurs with companies such as Lastminute.com, whose last-minute range of products and services appeals to those who have money to spend but no time to spend it. The company, started by Brent Hoberman and Martha Lane Fox just over a year ago, is currently valued at £400m.
Tim Berners-Lee, the man who invented the generic user interface for the Internet, today known as the World Wide Web.
Jeff Bezos, founder of on-line bookstore Amazon, one of the most established e-commerce businesses. He was also Time magazine’s Person of the Year last year.
In the UK, Tony Blair has appointed Alex Allen, as an e-envoy to boost performance. And the cabinet office has set targets demanding that a quarter of government business must be done on the Web by 2002 rising to 100 per cent by 2008.
The IoD has appointed its first head of e-business policy, Jim Norton, who is focusing on small businesses.
Many of the business schools, like Henley Management College and Cranfield School of Management, also have their own e-commerce experts.
It is important to know that e-commerce projects have a tendency to grow and devour resources and that means you will have to consider how to recruit e-commerce-savvy staff. You will need to know how much to pay them – a project manager will command about £45,000, Web designers demand between £30,000 and £35,000, and as for programmers, the sky’s the limit. You will also need to know how to secure staff loyalty whether by lock-in clauses, profit sharing, or a hugely increased training budget.
[email protected] office report into Internet trading.
Weaving the Web Orion Business The past, present and future of the World Wide Web by its inventor. By Tim Berners-Lee, ISBN 0 7528 2090 7.
The Amazon.com Way The story of the Internet’s most talked about company. By Robert SpectorISBN 0 0666 2041 4.
The Electronic [email protected]: From the Silk
Road to the E-Road by Robin BloorOne of Europe’s leading IT analysts on the rules of e-commerce.
Internet 2000 The Rough Guide Angus J Kennedy Rough Guides ISBN 1 8582 8442 2.
www.forrester.com Forrester specialises in looking at the effect of technology on business.
www.nop.co.uk Go to its Internet surveys section for latest reports and findings.
www.trustwise.bt.com BTis committed to raising confidence in e-commerce by providing tools to communicate securely on-line.
Sue Weekes is deputy editor of the net